Earnings Transcript for AMMX - Q3 Fiscal Year 2021

Operator: Good day, and welcome to the AmeraMex International Third Quarter 2021 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Marty Tullio. Please go ahead. :

Marty Tullio: Thank you, Grant. Good morning, everyone. Before we begin today's call, I'd like to share with you that the statements made in this conference call that relate to future financial results, markets or growth plans are forward-looking, and these statements involve certain risks and uncertainties associated with the demand for the products and services and the development of markets for the company's products and services. The 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 undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after today or to reflect the occurrence of unanticipated events.

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

Lee Hamre: Good morning, Marty. Thanks for joining us this morning for our third quarter conference call, everybody. With me today is our Chief Financial Officer, Hope Stone; and Marty Tullio, one of my Board Members.

We've had an outstanding 9 months. As of today, we have announced sales of approximately $25 million, and we still have 6 more weeks of selling to do. And the fourth quarter is quite often our best quarter. It's going to be tough to beat the third quarter, but we'll give it a heck and see if we can. :

Our current pace of sales shows the best year in the history of the company. It actually already is because $23.5 million, I think, was the best year up until now. The terms sales and revenue are often used interchangeably. But in our business, when we book a sale from a customer, that sale is not posted as revenue until we can ship the machine. :

Occasionally, we sell new equipment that can take 6, 9, even a year to deliver. Actually, right now, deliveries on new equipment are out almost 18 months. So if we book a sale this month, it may not deliver until end of 2023. So it does kind of screw up the numbers a little bit, but only -- that just means there's more than what we're reporting. It just hasn't shipped yet. :

In the third quarter, we realized a revenue of $4.5 million from new Taylor equipment sold in late 2020. Therefore, out of the $8.2 million in revenue, $4.5 million was from new equipment. And new equipment from the factory carries a considerably lower profit margin. It's -- it can be as low as 3% or 4%. The factory just gives us what discount they're willing to give us, and we have to be competitive in the market. So it doesn't leave us a lot of room. :

But the advantage, of course, to selling a new is we have access to all the trade-in or used equipment, which is where the company makes our profit margin when we get the used equipment in and we fix it up and recondition it and retail it. It gave us the ability to inexpensively buy used equipment from the customer for refurbishment and resale. And margins on refurbished or resold equipment are 25% and more, sometimes as much as 50%. :

I'd like to turn the call over to our CFO, Hope Stone, so that she can provide an overview of our financials for the period. Hope? :

Hope Dilbeck-Stone: Thanks, Lee, and good morning, everyone. Let's begin with an overview of the statement of operations for the third quarter and the period ending September 30, 2021.

Revenue for the third quarter was approximately $8.2 million compared to revenue of $5.9 million for the third quarter of 2020. This is a 72% increase. Revenue for the 9-month period was approximately $18.5 million compared to revenue of $19.1 million for the same period in 2020. This is a... :

Lee Hamre: $9.1 million, not $19 million. It was $9.1 million.

Hope Dilbeck-Stone: Okay. Sorry. $9.1 million for the second -- the same period in 2021. This is a 49% increase in revenue.

Gross profit for the third quarter was approximately $815,000 with a gross profit margin of 10% compared to gross profit of $809,000 and a gross profit margin of 14% for the third quarter of 2020. As Lee just discussed, our profit margins are based on product mix, sales of new equipment versus refurbished equipment. And over 55% of -- excuse me, and over 55% of revenue for the third quarter was generated from new equipment carrying a 3% profit margin. :

Gross profit for the 9-month period was $3 million compared to gross profit of $1.7 million for the 9-month period of 2020. Gross profit margins were 16% compared to gross profit margins of 18% for the 9-month period of 2020. Again, margins are affected by -- the margins were affected by $4.5 million of new equipment in the third quarter. :

Profit over operations for the quarter ending September 30, 2021, was $343,000 compared to profit from operations of $19,000 for the 2020 quarter. Net income for the quarter ended September 30, 2021, was approximately $83,000 compared to net loss of -- $83,000 for the 2020 quarter. That's -- I don't believe that's correct. I'll -- we'll make sure that, that gets corrected. :

Profit from operations for the 9-month period ended September 30, 2021, was $1.6 million compared to profit from operations of $197,000 for the 2020 9-month period. Net income for the 9-month period ending June 30, 2021, was $527,000 compared to a net loss of $408,000 for the comparable 9-month period of 2020. :

Balance sheet overview. Total assets for the 9-month period were $11.8 million, a decrease of approximately $700,000 when compared to total assets of $12.5 million for the year ending '20 -- December 31, 2020. This was due in part to a reduction in our rental pool equipment and tightening up of our receivables. :

Total liabilities for the 6-month period were $9.6 million, a decrease of $1.3 million when compared to total liabilities of $10.9 million for the year ended December 31, 2020. This is due in part to a $1.5 million reduction in the company's line of credit and $0.5 million reduction in notes payable. :

On September 7 -- this is a quick update on our financing. On September 7, 2021, we were offered and accepted an increase in the COVID Economic Injury Disaster Loan from $150,000 to $500,000. The remaining $350,000 is expected to fund at any time. This has been a really long process, and they've been promising since March. So hopefully, we will get that soon. :

Unfortunately, we were unable to obtain a loan through the SBA and [ USD ] as the loan structure and parameters they offer do not allow to loan to a publicly traded company. This was not discovered until we were 90% completed -- have completed the process almost entirely. They -- we weren't tied, in fact, we were publicly traded. But they didn't seem to be aware of it until we were at the final stages of getting that completed. So we have decided to move in other directions. :

We have several different financial institutions that we're working with to secure the funds. If the loan is obtained, the $10 million will be used to refinance all of our debt into a long-term, low interest rate loan with an embedded revolving line of credit to be used to buy new and used equipment to be leased or sold to customers. This will reduce our monthly operating costs and increase our ability to obtain the equipment our customers need on a timelier basis and with better terms. :

I'd like to turn the call back over to Lee. :

Lee Hamre: Thank you, Hope. Before I open the call up for questions and answers, I wanted to provide a brief overview of the markets we sell into locally as well as throughout the West Coast.

Many home starts are being approved in areas affected by the fires over the past 3 years. Building permits are coming out of the county seat, Oroville, every day for the people in Paradise that want to rebuild from the fire, November of 2019. 13,000 homes burned to the ground in November 2019. And then there was the shutdown of the economy in March 2020. So no progress was made with building permits until this summer. :

Construction is expected to continue for 5 to 10 years just in Paradise. The Forest Service and the California Division of Fire, CDF, have begun to award contracts over the past few months, and the pace is now increasing. These contracts are going to small business, machine owners that can go into the woods and clean up underbrush and small growth to decrease the fuels for forest fires. We're selling the ASV tracks, skid steer machine with a brush grinder attachment to these contractors. Over the next few years, we expect to sell 100-plus machines for this job area. :

The port-side logistics companies are heavily motivated to get containers off the ships and then out of the ports and into dry ports and distribution centers. I'm sure you've all heard about the backup in Long Beach. And into the fourth quarter, we've sold a number of machines because of that. We've sold empty and loaded container handlers, and they're both in demand, and we are selling them as quickly as we can get them refurbished. Overall, we sell to high-growth industries and expect the growth to continue. :

Operator, we're ready for question and answers. :

Operator: [Operator Instructions] Our first question today comes from Allan Cohen with B&C Financial.

Allan Cohen: Lee, first of all, congratulations on the sales pickup. That's nice to hear. I have a twofold question. First of all, in reading the report for the third quarter ending September 30, it says you have net income -- net profit of $343,000 and net income of $83,000. I guess this is for Hope. Can you tell me what the differences between those 2 numbers?

And my second question is, for 9 months, you said you had net income of $527,000. Am I correct to assume that equates to $0.035 a share?. :

Hope Dilbeck-Stone: No. So the difference between the net income and what was the other...

Lee Hamre: Net profit.

Allan Cohen: Net profit.

Hope Dilbeck-Stone: Okay. So they're actually the same. A gross profit is different than a net profit. But a net income and a net profit are the same. But we're talking about for the 3 months versus the entire 9 months. So that's what the difference is there. So the net income for the 3 months ending September 30 was $83,000 in 2021, and it was actually a loss of $83,000 for 2020. And I stumbled over that. I actually thought it was an error, but I just went and checked my financials, and that's correct. So we had a full swing there, from a negative to a positive.

Allan Cohen: Can you hear me? Am I still -- can you hear me?

Hope Dilbeck-Stone: Yes.

Allan Cohen: You may want to change your news release because it said statement of operations for the third quarter ending September 30, '21, the company reported net profit from operations of $0.343 million, in other words, $443,000 (sic) [ $343,000 ] for the quarter. And then the next sentence, there's net income for the quarter, was $83,000. So you're saying the company reported net profit of $0.343 million and net income of $83,000 in that same sentence -- that same paragraph, right under statement of operations for the third quarter ending September 30. So I think you have an error somewhere there, unless I'm wrong. But you clarified that it is $83,000...

Hope Dilbeck-Stone: Yes...

Allan Cohen: For the third quarter.

Hope Dilbeck-Stone: Yes.

Allan Cohen: And again, it does say net profit from operations of $343,000. And my other question, can you get to the per share amount for the 9-month period of $527,000?

Hope Dilbeck-Stone: It was $0.04, Allan.

Allan Cohen: $0.035. That's what I got.

Hope Dilbeck-Stone: $0.04, yes. It was rounded off. And...

Allan Cohen: For earning -- for the 9-month period, we earned approximately $0.04 a share.

Hope Dilbeck-Stone: Correct. So...

Marty Tullio: And Hope...

Hope Dilbeck-Stone: I'm sorry. Go ahead.

Marty Tullio: I'm sorry. Hope is struggling with laryngitis this morning. But what you're talking about, Allan, was the profit from operations is $343,000 for the quarter, but you come down and then you take out your interest expense, your loss or extinguishment of debt and other income and then your taxes and things like that, so you net out $82,000 or approximately $83,000...

Allan Cohen: You're saying in AmeraMex's world, there's a difference between net profit and net income?

Marty Tullio: No. Profit from operations versus net income.

Allan Cohen: But you talked about your gross margin, in other words. Okay. Well, because the news release says net profit from operations, $343,000.

Marty Tullio: I should -- you know something, the net shouldn't be in there. Just -- excuse me, profit from operations. And then after that, you have other income expense, income before provisions for taxes, provisions and benefits from income taxes and then you have net income.

Allan Cohen: I'm with you. I think that should be clarified in the...

Hope Dilbeck-Stone: Well, we should just take out net profit. That's my fault.

Allan Cohen: Right. Right. Okay. Thank you very much. I appreciate your clarification.

By the way, well, am I still on the line? :

Marty Tullio: Yes.

Lee Hamre: Yes, you are.

Allan Cohen: So many -- on your last quarterly call, someone talked about putting money into promoting the stock. Let me just tell you from another stockholder's point of view -- I've been a stockholder now for probably over 10 years with AmeraMex. I got to tell you, I do not want you to put anybody into promoting stock. I want you to put money into promoting sales. The stock will come by itself. I guarantee you the stock will go up if the sales go up and the net income goes up. Everything will work out.

And obviously, there's no volume now at all. So I look at the price of the stock, it's meaningless to me because there's no volume. So again, as far as I'm concerned, and the stockholder is concerned, just focus on sales and income. Don't waste any money on promoting the stock at this time. :

Lee Hamre: Well, that's where I spend my time.

Allan Cohen: All right. Very good, Lee. Thank you. We thank everything you're doing. Thank you for what you're doing.

Lee Hamre: No problem. I enjoy what I do. I just like it to work a little better on the stock end.

Allan Cohen: Sure. We would all like it. But I mean the numbers are not there yet to justify too much of higher stock, but it's coming. It looks like it's coming. So...

Lee Hamre: Yes.

Marty Tullio: Thanks, Allan.

Allan Cohen: Thank you.

Operator: Our next question comes from [ Stephen Cois ]. He's a private investor.

Unknown Attendee: Good morning, Lee. Fantastic quarter. Congratulations. I just wanted to reference the question I asked on our last conference call. Now that the infrastructure package has been passed, I would assume this is going to be a huge plus for AmeraMex. Correct?

Lee Hamre: It should be. It just depends on where the jobs are getting handed out. There are several big contract releases going to happen right here in Northern California, and that should make a good difference.

Unknown Attendee: Fantastic. Thank you.

Operator: [Operator Instructions] Looks like we have a question from [ Kevin Gregor ] with [ Retail ].

Unknown Attendee: Well, my name is [ Allan Gregor ], I'm a private investor. And Lee, I have a question for you on the lease results. There's an item loss from early extinguishment of debt, $110,551. Would you be kind enough to explain what that is?

Lee Hamre: That's probably something that Hope should answer.

Hope Dilbeck-Stone: Yes, I'll answer that for you. So sometimes in the financing, maybe a deal starts off as a long-term rental, and we finance the equipment and then the customers decide to purchase the equipment. We have early payoff penalties and -- or a lump sum of interest that were -- might be required to pay if we're paying off the financing early. So that's what that's tied to.

Unknown Attendee: Can I then have a follow-up question? There was a similar problem a year or 2 ago, a similar kind of loss. And we talked about it, and it was apparent that your contracts ought to have an equivalent penalty to your renter, to the penalty that you have to pay for the people you're borrowing from. You can't have this inequality between the contracts. And it seems to me that, that $110,000 is really money thrown away because if your contract had been properly worded, you wouldn't have to meet that. Could you comment on that, please?

Hope Dilbeck-Stone: Well, it is challenging finding financing for the type of equipment that we have. And when a deal structure changes like that, sometimes we end up with that situation. But we do our very best to have the lowest interest and get the very best financing that we can for each piece of equipment. But also remember, we're dealing with used equipment, and financing on that can be challenging at times. So we do the best...

Unknown Attendee: I do understand that. But do you not think it will be a sensible idea to review your contract language because I can't have a feeling that a lawyer may help you to identify a way to avoid these losses in the future.

Lee Hamre: The way I try to avoid it is we put like a 6-month minimum or a 12-month minimum on a rental purchase contract. And as long as it says 12-month minimum, then we avoid those higher interest charges because when we borrow the money, they'll give us early payoff if it's before 12 months. So we do try and get that in the contract more now. We actually do a lot better at that now than we used to. And we'll keep doing our best. I mean I don't like to see those losses either.

Unknown Attendee: Great. Would you mind if I ask you just one more question? You said in a recent statement, your very welcomed intention to try and improve your gross margins so that you make a better net profit. Would you be able to tell me some of the measures that you'll be taking to achieve that?

Lee Hamre: Well, we track our expenses a lot better now. We've got a good system in place when we're reconditioning or rebuilding a machine. So we know every day what we spend on each machine in the way of labor and parts. And then we do our margins based on our total cost. There's been times a few years ago where we didn't have that capability. We have to estimate our costs, and then we put a price for sale that we know is high enough to make a profit, but we really don't know exactly where we're at until the deal is completed. And that doesn't happen anymore.

Unknown Attendee: Great. So your -- I mean I can't expect you to forecast, but you anticipate that it will be maybe better net profits in 2022?

Lee Hamre: Well, absolutely. It's just -- the biggest problem we ran into this time was, as we talked about in the release, was the new equipment versus used equipment because the used equipment were 25-plus percent and new equipment were 3% or 4% from the factory. And the $4.5 million worth of new equipment I sold this year, and we got revenue on this year, was all at really low profit margins because the factory basically makes their money and the dealer has to sell within competitive prices. So we're stuck with what we can get for it, and our cost is fixed by the factory.

Unknown Attendee: And do you feel obliged to make those new sales?

Lee Hamre: Well, yes. We're the dealer for the factory. And if we don't make them, then we wouldn't be the dealer. If we weren't the dealer, we don't have access to all the used equipment that's getting traded in or sold as they replace it. So the margins really come from the used equipment. And the new equipment is -- it's just something we have to do. If I could get all the used equipment without having the new equipment expense, I would definitely do it.

Unknown Attendee: Okay, thanks. That explains it very well.

Operator: [Operator Instructions] It appears there are no further questions at this time, so this will conclude our question-and-answer session.

I would like to turn the conference back over to Lee Hamre for any closing remarks. :

Lee Hamre: Now we'd like to thank all of you for taking part in the call today and for your continued support. We look forward to talking with you when we announce our year-end financial results coming up in the first quarter. And thank you, again.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.