On December 10, The Wall Street Transcript interviewed Kenneth A. Chymiak, President, Chief Executive Officer and a Director of ADDvantage Technologies Group, Inc. Key excerpts follow:
TWST: What is ADDvantage Technologies Group?
Mr. Chymiak: ADDvantage Technologies Group is a comprehensive line of companies that supplies the cable television industry with many product lines, system critical network equipment and hardware, and eight nationwide technical repair centers. The key driver of our company is that we are the only master stocking distributor for Scientific-Atlanta new and legacy broadband products, which is now owned by Cisco. We are also a VAR in the broadband sector of Motorola products. We are able to sell the top two product lines in our industry. In addition to that, we also buy surplus products that are new and used equipment that we refurbish and sell in the secondary market. We have three segments that generate revenue: new products, refurbished products and surplus products, and service.
TWST: Give us an idea of what the overall marketplace looks like, some of its dynamics. What are some of the competitive dynamics? What is the differentiator for ADDvantage?
Mr. Chymiak: What's going on in the industry right now is you have the competition between the telcos, like Verizon and AT&T, and Cox, Time Warner, Comcast and many others including those in the smaller secondary markets that are getting in the telephone business. Now, they have the triple play; they have the video, telephone and the Internet. The Verizons of this world and AT&T, as I mentioned, are now trying to get part of the video business that the cable companies control. The large telephone company's model is to build fiber to the home, the cable television companies have to remain competitive and stay ahead of the competition. That's a big driver for our industry, the demand for more bandwidth. The reason why bandwidth is essential is because with analog you can only get about one channel in a certain amount of bandwidth and when they went to digital, they were able to compress the signal to get 10 channels out of the same bandwidth. Now with HD, they can only get three channels. You can see as they add more HD channels, they need more bandwidth. The pipe or bandwidth needs to be larger in order to accommodate the demand. They have to change electronics and the hardware that is on the fiber or coaxial cables, which includes fiber optic nodes or amplifiers. A good part of the business that's going on now is that they are spending more on that bandwidth to be competitive in the industry. Since we maintain a large inventory, we are able to deliver from our stock. We product equipment "on hand on demand." We maintain one of largest product lines and inventory, and can deliver quickly when we get an order. Even in emergency situations some companies begin calling to determine our inventory levels in case they need equipment to replace in storm damaged areas. Our large comprehensive inventory and knowledgeable technical staff are two of the main reasons for our success.
TWST: What is the agenda for ADDvantage at this point? What is online for the next 12-24 months? What would make that time frame a success?
Mr. Chymiak: We are always driven by sales. We look for new opportunities with our partners. We are always looking for opportunities either with new clients or extending our relationships with some of the larger MSOs with our new product lines. We are very entrepreneurial. We are very nimble and we can move in any direction very quickly. For example, in the fall of 2006 we acquired a company that is in the green e-scrap destruction industry, along with the redeployment of excess inventory for many cable companies. The primary business model is selling used converters. We moved very quickly into this new market and are becoming one of the dominant players in that market. Our market for refurbished converters is the United States, Canada, with South America being the largest potential market. These are legacy converters and cannot be redeployed in larger United States cable companies because the FCC has mandated all new converters have cable cards. The consumer electronics industry has pressured the FCC to allow an open market for their converters to compete with Scientific-Atlanta, Motorola and others. We were looking for an entry into this market to take advantage of this opportunity. Our strength is our inventory and our financial resources. When we go look at a deal, we always look to see if we can make money and we don't look at do we have the money. Even though in the big world we are a relatively small company, we had $48 million worth of revenue for the first three quarters or nine months of this fiscal year. We will report our year-end in the next month or so. We are very nimble, which allows us to react to the market as it changes.
TWST: What today compels investors to include ADDvantage Technologies Group as part of their current portfolios and longer-term investment strategies?
Mr. Chymiak: I think if I were an investor unaware of us, I would check us out, check the ADDvantage Website and check the NASDAQ site. We recently went on NASDAQ, which is an important milestone for ADDvantage Technologies Group. ADDvantage was recently chosen by Forbes as the l07th of the 200 Best Small Companies. ADDvantage is a small cap company but we have been very consistent, beginning when my brother and I purchased Tulsat in bankruptcy and since l999 as a public company. Based on our performance and earnings and revenue history, I would encourage investors to visit our Website, www.addvantagetech.com, and other financial Websites to compare us with others in the small cap marketplace. We have a strong management team with a strong entrepreneurial background. We have teamed up with the right partners, which are Scientific-Atlanta, owned by Cisco, and Motorola.