Q4 2021 TESSCO Technologies Inc Earnings Call
Ladies and gentlemen, thank you for standing by and walk on to the Q4 'twenty 'twenty. One tests go Technologies, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you in Egypt Press Star one on your telephone.
Phone. Please be advised that today's conference may be recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today day, they can lose D N from Sharon Merrill. Thank you. Please go ahead Sir.
Good morning, everyone and thank you for joining <unk> Q4, and fiscal year 2021 conference call. Joining me today are Sandy Moca G <unk>, President and Chief Executive Officer, and Eric The Potomac. The company's CFO. Please note that managements discussions today will contain forward looking statements about anticipated results and future prospects.
Forward looking statements involve a number of risks and uncertainties and test those results may differ materially from those discussed today information concerning factors that may cause such a difference can be found on test goes public disclosures, including the Companys. Most recent form 10-K and other periodic reports filed with the Securities and Exchange Commission with debt.
<unk> I would like to turn the call over to Sandy book of G. Tesco as President and CEO Sandeep. Please go ahead.
Thank you David and good morning, everyone.
Thank you for joining us and I Hope you and your families are staying safe and like the rest of us of Tesco are looking forward to of post pandemic normal.
Our results this quarter reflect the lingering effects of the pandemic along with more recent impact from disruptions to the global supply chain we.
We did however experienced the significant upward trend in customer demand in the second half of our fiscal year, which resulted in the biggest order backlog, we have had since before the pandemic.
When we established on our strategy for last year, we certainly envision a very different market environment.
But despite the pandemic, we made substantive progress in each area of our plan and achieved several milestones with respect to our key performance initiatives.
All of the above along with market projections for the industry wide growth gives us confidence as we begin the new fiscal year the.
Four elements of our strategy work to divest our retail business to allow the total focus on the wireless infrastructure construction market drive growth and efficiency in our core distribution business.
Develop a rent of business into a leading innovator of products to help customers resolve infrastructure construction challenges.
And develop proprietary services to support the products our customers deploy in their networks and to address their biggest pain points throughout the construction deployment and management of cycles.
With the sale of our retail assets in December the fourth quarter of fiscal 2021, Mark the real beginning of the new Tesco.
Several recent wins and R&D highlights positioning us to build sustainable and profitable growth some of the highlights include.
Increased market share in the AT&T ecosystem of leading position in the Verizon minor materials program.
Renewals of several state contract.
The reversal of the declining trend in our two way segment logging substantial growth.
Vantiv warehouse, the antennas and mountains specced for use in several fortune 100 facilities.
Expanded vantiv antenna business beyond Wi Fi.
We stopped selling broadband antennas, covering LTE CBR S and five G bands.
Ventas The award of a pattern for the outdoor Wi Fi Ballard and.
And beta testing of our first software based of the suffering with one of our key var customers.
Before I provide you with more detail on the progress with our strategy. Let me walk you through our Q4 performance in both of our reported markets.
Let me start with our var and integrator of business.
Our var and integrator business includes all wireless infrastructure business outside of the carrier ecosystem.
As we have noted previously many of our of our customers have reduced their workforces due to challenges caused by delayed projects limited access to venues and government approval delays.
It is difficult to predict exactly when these issues will be resolved during the second half of the fourth quarter. We saw signs of increased walk throughs designs and ports.
We believe that these are encouraging and early indications that the impact of the pandemic is lessening.
Some specific highlights in Q4 included.
New cellular das installations in medical facilities manufacturing plants global logistics providers courthouses and jails as well as warehouses of a leading global online company.
Strong year over year double digit growth in two way sales driven by better inventory stocking positions and stronger focus by our sales team.
Renewables of buttressing contract with over 20 states.
And the community wireless projects to support mobility for first responders as well as edge connectivity for underprivileged youth.
Our focus on the utility sector continues.
Wins this quarter included of long term multimillion dollar purchase contract with an investor on utility <unk>.
<unk> integrated solutions to enable multiple grid modernization applications from one of the largest gas and electric utility holding companies in the U S.
A refresh of a large portion of the stick weapon from one of the country's largest electric power of holding companies.
And a new contract with one of the largest investor owned utilities.
It is also important to note that we saw a significant double digit year over year of growth in fleet and mobility solutions.
We added some key brands to our line card in support of the var and integrator customers, including Sam Sara which offers Iot solutions focused on industrial applications and fleet.
We also began offering Samsung private LTE products. These are turnkey solutions for industrial cost from us electrical co ops Rudolph service providers and Oems much of the Samsung product is expected to be used in large public venues and office spaces.
Our complete <unk> solution includes the partnership with Federated wireless to provide SaaS and core network services.
Turning to the public carrier market.
Our improved offer and strong focus on business development. During this last fiscal year as a result of then maintaining market share with the top turf contractor.
Significantly improving market share with the next two and breaking new ground with through emerging turf contractors.
Additionally, we have maintained strong market share on the Verizon miner of materials program. We continue to lead in sales of directly to Verizon and are amongst the leaders in sales to Verizon General contractors.
We're focused on continued development of this general contractor market, which we expect will drive sales growth in fiscal 2022.
Our strength in the carrier ecosystem is due to one a recognized logistics and supply chain management expertise.
<unk> proprietary engineering and production capabilities, which address needs that are unmet by our competitors and three our strong focus on new business development and market share growth.
We estimate that approximately 20% of our carrier segment sales this quarter were related to five G.
Throughout this quarter Q4, and continuing into this current quarter, we have built a large backlog of <unk>.
Business of that backlog approximately 60% is related to <unk>.
In both of our markets, we have seen an increase in customer demand in the second half of our fiscal year, but given the ongoing supply chain disruptions. We are not yet seeing revenue improvement. We currently have the largest order backlog we've had since the onset of the pandemic.
At the end of Q4 of our backlog was over 46% higher than back at the end of Q3.
And the backlog in the second half of fiscal year, 'twenty, one was 40% higher than the first half.
This unique situation as the result of three factors.
Our own improvements in sales and business development are creating new opportunities of new bookings with desktop.
Second global supply chain disruptions, which have been well documented and has impacted companies across the globe accumulated demand backlog from the pandemic ocean container shortages and overburden capacity at the U S. Sports have all contributed to longer lead times and disruptions. We are now seeing.
Additionally, the ice storms in Texas in mid February delayed shipments from some of our largest manufacturers.
And finally, the increased intensity of new five G. Bose is requiring new products and configurations, the global supply chain issues of keeping the industry from meeting the new demand in a timely manner.
The supply chain disruptions are continuing into this quarter as well logistical challenges container issues and global shortages and chips are impacting the largest Oems.
Overall lead times of more than doubled on some products.
To mitigate the impact of extended lead times on product shortages, we have taken several steps we.
We are diversifying our vendor offerings to enable alternative product suggestions for customers. We have increased the depth and breadth of our demand planning efforts with key customers.
And we are selectively increasing stocks of high demand and constrained inventory.
Turning to our key performance initiatives first our IP transformation project, consisting of modernizing our core systems and enhancing our website <unk> dot com.
Benefits of these improvements to customer service on order processing enhancements to our purchasing the effectiveness. We believe these will have a positive impact on long term operating profitability give.
Given the scope of the transformation, we're moving forward thoughtfully.
<unk> seen the availability and reduction in the number of OLED cases has given us the confidence to bring employees back to the office after the independence day. This.
This will allow us to begin live hands on training with employees updated business processes and go live with our enhanced platform. We expect this to happen during the second half of our fiscal year.
Regarding Tesco Dot com, we have implemented several improvements.
These include features to enhance customer tracking of orders on.
New proxy shop feature, enabling Tesco sales reps to provide real time of assistance for online orders.
Expanded support through live chat and chat box features.
Shopping cart and browser abandonment solutions to capture a greater percentage of online browsing.
And continued content build out to make the ESCO dot com the number one destination for inflammation in the wireless industry.
We are already seeing results from these enhancements.
In Q4, our current and browser abandonment solutions resulted in over $1 million and recovered revenue and our online revenue continues to grow as a percentage of overall sales.
Moreover, customers are spending more time and getting more information from Tesco dot com as evidenced by a 100% increase in the number of product detail page views compared to the first half of the year.
To accelerate our progress on these enterprise and digital initiatives, we recently hired Jeffrey Hillman as Tesco as Chief operating Officer Jessica.
Jesse has over 30 years of experience and has held numerous CIO and leadership roles, including his most recent position as vice President of information technology at lifeboat Holdings, Jesse will assist with our it transformation the better support our customers and drive efficiencies throughout the <unk>.
Organization.
Our three pillar strategy continues to direct our efforts and in fiscal 2021, we made progress in each area.
The first revolves around our core distribution business as I previously discussed we are seeing strong market share gains in the carrier business. We're also focused on high growth sectors in Nevada, and integrator market, such as utilities and government.
We believe that we are in a better position to grow when the effects of the pandemic subside and the economy improves.
Our operational performance improvements have been concentrated in the modernization of our ERP system enhancements to Tesco dot com, improving our inventory planning and management maximizing our design services capabilities.
And restructuring our sales support organization to best meet the needs of our customers on our sales team.
At the same time, our profitability improvements are focused on driving increased web commerce offering unique vertical solutions, including the use of our margin enhancing vantiv products and driving cost efficiencies throughout the business.
The second pillar of our strategy is to industrialize, our vantiv operations scaling our capabilities and driving innovation.
Our progress in this area included the elimination of over 2000, skus, leading to reductions in excess and obsolete inventory costs transportation costs, and lower engineering change management expenses.
The addition of power systems cable connectors, and jumpers and enclosures and antenna skus to our robust product offerings. The.
The greater use of feedback from customers and vendor partners to guide roadmap decisions.
And our new partner designation by Cisco and their Internet of things design in program.
The third pillar is our development of proprietary value added and software driven service offerings to resolve complexity and pain points for our customers where the.
Building out an array of services that will generate high margin and recurring revenue we are expanding our focus on broader utilization of our industry leading design services. For example, we provided over 1000 designs. This fiscal year for Das LMR tower broadband.
And DC power systems, and demand has increased over 20% per year for the past three years.
Finally, our initial software product offering which is now in beta testing will be of cloud based device lifecycle management services solution. It will provide customers with the data and analytics needed to manage a wide variety of devices from deployment to replacement, we expect form of.
The launch of this product later this fiscal year.
With that I will turn the call over to Eric for the financial review.
Eric.
Thank you Sandeep and good morning, everyone.
Sandeep mentioned, our Q4 results reflect the impact of the pandemic along with some disruptions to global supply chains. Nonetheless.
Nonetheless improvements and our strategic execution, improving customer demand and increased order backlog gives us a great deal of confidence for fiscal year 2022.
Starting with the top line fourth quarter revenues totaled $88 7 million compared with $105 8 million in last year's fourth quarter and $99 2 million in the sequential third quarter.
The year over year decrease was due to lower sales in both of our markets largely due to the pandemic.
Our ability to ship product and recognize revenue was also impacted by global supply chain delays.
Gross profit for the fourth quarter was $16 8 million compared with $19 6 million for the year ago period.
Gross margin was 19% of revenue compared with 18, 5% last year.
The year over year increase in gross margin was the result of increased margins in our carrier market due to changes in customer mix. While we have made some improvements in the carrier margin, which will have a positive impact going forward. We do expect the year over year decline in carrier gross margins in fiscal 2022.
SG&A expenses for the fourth quarter decreased 16, 8% from the prior year quarter to $19 6 million due to lower sales and cost control initiatives, including the reduced head count marketing information technology and corporate expenses.
For the fourth quarter of fiscal 2021, the loss from continuing operations before income taxes was $2 8 million.
Compared with the loss of $13 3 million in the fourth quarter of fiscal 2020.
The fourth quarter of fiscal 2020 loss included a goodwill impairment charge of $9 1 million.
Net loss from continuing operations was one 7 million or <unk> 20 per share for the fourth quarter of fiscal 2021.
Compared with the net loss of $7 9 million or of 92 per share for the year ago period.
Both 2020 figures include the goodwill impairment charge.
Our Q4 loss from discontinued operations was $1 2 million versus $6 2 million last year.
The fourth quarter loss from discontinued operations was largely related to taxes and other changes in estimates for various reserves.
The consolidated net loss was $2 9 million of 33 per share for the fourth quarter of fiscal 2021.
This compares with the consolidated net loss of $14 1 million of loss per share of $1 65 from the prior year fourth quarter.
Adjusted EBITDA and adjusted EBITDA per diluted share from continuing operations were a loss of $1 9 million and 22 cents respectively.
This compares with adjusted EBIT on an adjusted EBITDA per share of the loss of $2 6 million and 30, respectively for the year ago period.
Now onto the balance sheet.
Inventory is down significantly from the end of fiscal 2020 due to the sale of retail.
Inventory is up slightly as we continue to balance our stocking positions with anticipated customer demand.
Accounts receivable were $70 million compared with $83 million at the end of fiscal 2020 also as a result of the retail sale.
We are continuing to work down on receivables and other retail related assets and liabilities.
At yearend, we had approximately $5 million of AAR from retail customers over half of which was from voice com related to product purchased in the transition period.
We expect approximately $8 million from tax refunds.
<unk> 4 million of which is related to fiscal year 2020.
Our return on its been filed and is awaiting IRS processing.
The remaining of $4 million relates to fiscal year 2021, we will be working on filing that return shortly.
We ended the year with an outstanding balance under our 75 million dollar of line of credit of $30 6 million and we maintained the balance of $1 1 million in cash and cash equivalents.
Our borrowing base allows us full access to this line of credit.
Evidence kick in at $62 5 million, so we have over $30 million of availability at year end.
Fiscal 2021 was clearly a challenging year for many companies and Tesco was no exception.
However, our divestiture of the retail business was a key component of our long term strategy.
The improvements in both the internal and external landscapes. Our sales team is showing improved booking results and is off to a nice start from the first half of this first quarter.
Externally the impact of the pandemic is beginning to lessen and the macro economy is trending up.
All of this gives us confidence in our ability to improve revenue and profitability in fiscal 2022.
With that I'll turn the call back over to Sandy.
Thank you Eric.
While we are encouraged by the recent signs of the macroeconomic recovery in the U S and the improving demand from our customers as evidenced by our increased bookings our visibility regarding the future pace of recovery is limited by several factors, including widespread supply chain delays and disruptions across the industry.
For fiscal year 2022, we expect to see a significant lessening of the impact of the pandemic and on improving macroeconomic environment.
Combining these external conditions with continued execution of our strategy. We believe that we will show significant year over year of growth in revenues in both of our markets.
We will also maintain our focus on cost controls and expect to achieve significant improvement in our overall profitability.
We have the right strategy in place to seize these opportunities and I look forward to reporting our continued progress to you.
With that we will open the call for questions.
Operator, Please go ahead.
At this time if you have a question. Please press Star then the number one on your telephone keypad.
And your first question comes from Maggie Nolan with William Blair.
Hi, Thank you.
With everything that's going on in the supply chain.
What are you seeing in terms of unit costs and inflation and have you had any initial conversations with clients about pricing.
Hey, good morning, Maggie Thanks for the thanks for the question.
Of.
Looking back at the quarter, we're reporting on and the fiscal year.
We haven't seen.
The cost points move from.
The industry.
There are always puts and takes but the answer to your question is we don't we have not seen that dynamic.
In terms of looking forward and anticipating.
Some of these issues, we are always in discussions with both customers and suppliers Maggie so it's not of concern inflation is not of concern yet.
Okay and then.
Great to hear the Q4 bookings metric.
Is there any additional color you can share on how things are trending in April and May.
Eric I believe already addressed that I will just repeat Maggie and hopefully that gives you. Some color that we are seeing continued.
The improvements.
Good results in terms of bookings intensity.
So it was out of three things we believe.
It's our own improvements on our own sales initiatives and Biz Dev efforts bearing fruit.
Second we are seeing more walk throughs designs the request for quote so we do see an uptick and intensity of the business across the board.
And we are seeing growth in new five G site construction. So all of those are good signs for Tesco and we're seeing good results in terms of bookings in the first half of this current quarter.
Okay. Thank you and then.
Good to hear about.
About the five G builds I am wondering is there any opportunity on the margin.
For projects related to <unk> versus what you've done in the past.
So a couple of points Maggie so first in terms of new Biz Dev and new <unk>.
New wins, we do see a possibility for improvement, but those will not show up in results go the volumes increase from those new contracts.
The second is part of our strategy. We are always looking for opportunities to include more vantiv content, we're more successful with that in dollar.
<unk> as opposed to the carrier builds where things have to be expecting a priori.
Our flexibility and shifting products is somewhat limited.
But we are seeing improvement in terms of how much vantiv, we can sell into this carrier ecosystem.
Okay, and then last one from me I am sorry, if I missed it but can you quantify the impact that the supply of Jan had on.
But the bar and carrier revenue.
Yes.
Maggie. Thanks. This is Eric Thanks for your question.
We are not going on quantified an exact dollars.
But you know.
What we've said is that it's higher than it's been at any point.
Over the course of the last 12 months from before the pandemic. So it's hard for US the to give you an actual number but it's definitely yeah.
Considerable enough price to be talking about.
Okay. Thanks for the time.
Thank you Maggie.
Hey, Kim Bernie questions. Please press Star then in the barrel one on your telephone keypad.
And your next question comes from Bill <unk> Zone with Titan.
Great. Thank you.
You may have already answered this but I do want to make sure.
Really clear that throughout the March quarter.
Is that your trends were improving essentially debt.
January was the lowest month in February of better than January March improved in April improved further.
So the correct in terms of what you were saying.
Yes, both good morning. Thanks for the question second half of the prior quarter was better than the first half of the quarter.
I think we also said that the second half of the year.
Fiscal year was better than the first half of the fiscal year.
Alright.
And then relative to May of <unk> question with supply chain.
Do you view it at this point now as is worsening further or.
Or has it now stabilized or I can't imagine that it's improving but all I guess for the multiple choice I'll throw that out.
So we are still continuing to see.
On the lead time issues.
The underlying drivers on many I won't repeat bill, but for US it's the lead time issues and they have doubled.
And trending upward so we don't see that affect lessening in the immediate future.
Okay. Thank you.
Then.
You are a farmer margins were up roughly 60 basis points.
In the Q4 versus the Q3.
Is that just noise or is there something.
<unk> is worthy of of conversation.
No it's just.
Mixes of of.
The product mix and customer mix nothing Vantiv was was flattish from Q3 out of Q4. So I don't think there's anything significant driving that just the mix issue.
Okay. Thank you and then relative to Vantiv kind of what's what's the next most important thing that you need to be doing with vantiv to improve your.
Uh huh.
Further penetration and improve that business.
Yeah Bill in prior quarters, we didn't spend much time.
On the transcript today, but in prior quarters I've discussed our focus on solutions.
We actually get a mix of third party products that we distribute coupled together with vantiv enclosures antennas cables. So the overall percentage of Vantiv in any unit shipment is higher than what it is today. So we have a team focused on debt we have added.
Technical capacity to that team that team is executing and the solutions will help.
Then behind the solutions is margin improvement as you are asking and we expect to see an intensity pick up of being able to sell these complete solutions. These complete kits, if you will to our customers going forward.
Okay.
Great. Thank you and then.
To carry your questions.
First of all.
You mentioned that the carrier margins are expected to decline in the fiscal 'twenty two versus this year is that implying that you all are expecting volumes to increase meaningfully from carrier.
The new fiscal year.
We definitely expect the volume increase as we said we expect our revenue growth on both of the markets.
And it's also an indication that some of the larger customers will be a bigger piece of.
Of that that growth on the overall mix of the business.
It's good news, but.
We at least wanted to point out, though that the margins are expecting to to go down a little bit from where they were it was pretty high this quarter.
Some of the larger customers werent as strong, but some of those the newer customers and some of the other things. We're doing around Vantiv is the Sandeep is talking about did have a small impact this quarter that did help out this quarter.
Alright. Thank you the next to continue.
Great. Thank you and then I missed the comment in the opening remarks, there was an AT&T milestone that was referenced.
Would you would you talk more about that please.
The Bill what we said.
It was improved market share in the overall AT&T ecosystem as you know we've had a strong focus.
And we've talked about this on prior calls and new business development, securing new logos and breaking ground with our offer our overall tariff offer which has had great receptivity in the marketplace. What we mentioned during the call is we have maintained our prior positions with <unk>.
Some of the larger customers, we have improved significantly new positions with other top.
Customers, who have large market share in the overall ecosystem and then the third point. We made was we have broken new ground, meaning we have established new relationships new business, new revenues with a couple of new turf contractors.
Great. Thank you of boats I appreciate the time.
Thank you for the questions. So thanks Bill.
At this time there are no further questions I will now hand, the call back to management for closing remarks.
Thank you operator.
And thanks to everyone for joining us today, we appreciate your support of Tesco I would like to end the call by thanking our team members for their continued hard work and dedication have a great day. Thank you.
That concludes today's conference. Thank you for your participation you may now disconnect.