Q1 2022 TESSCO Technologies Inc Earnings Call
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Good morning May I have your conference 18 of Berkeley.
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I would like to drill for task of technologies.
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Cash flow technologies.
1 of them in.
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David Brown, the AAV IV B R O W N.
Your company.
IRA a E R. A.
Telephone numbers.
212, 96 zero of 3.6.
Kevin.
Thank you so much of your line will be all holding for your conference the gang.
Please go ahead.
Everyone and thank you for joining test codes Q1 fiscal year 2022 conference call.
Joining me today are Sandy Mukherjee, Tesco, President and chief.
Net of officer, and Eric 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 coast results may differ materially from those discussed today information concerning factors that.
Exactly such a difference can be found in Tesco as public disclosures, including the company's most recent form 10-K and other periodic reports filed with the Securities and Exchange Commission with that introduction I would like to turn the call over to Sandeep broker G. Tesco President and CEO Sandeep. Please go ahead.
That makes you David and good morning, everyone. Thank you for joining us.
This past quarter the results confirm that the work we have done on our strategic initiatives over the past 18 months are yielding positive results.
Our revenue grew 18% sequentially and.
Thanks for that year over year with gains in both of our markets.
Area and the commercial business.
Furthermore, our growth in sales bookings was even stronger up 37% year over year, showing robust demand for our products and services.
This past.
Last quarter was a record for our carrier market as we continue to grow share with our existing customers, while adding new customers to our portfolio.
We also saw increasing utilization and strong growth in revenue on our website <unk> dot com, both sequentially and year over year.
And ninth of at the same time, we continue to make progress industrializing and refining our vantiv business, while developing our software offerings.
Our strong execution, coupled with the post pandemic recovery across our markets and the industry wide adoption and implementation of new technology give us confidence.
Confidence in our operating plan of the following.
Achieving between 408 and $442 million in revenue, representing 9% to 18% growth over last year.
Number 2 achieving full year adjusted EBITDA of between.
Breakeven and $2.4 million this compared to a loss of $12.8 million last year.
These results and our full year net loss of between 642 for 1 million and that compares to a $14.3 million loss last year.
This is an improvement.
<unk> of between 7 and 9 to $10.2 million year over year.
I would now like to walk you through the results and highlights of this past quarter and the following format for.
First I will speak about our 2 markets carrier and commercial.
Second the 3 elements of our business.
Distribution, Vantiv and software and finally, the performance of Tesco Dot com.
To help everyone follow our progress through the year more easily we will stick to this format for the remainder of this fiscal year.
Let me start with the carrier business the.
The first fiscal quarter.
Mark the highest carrier market revenue in <unk> history.
Our continued strength is due to our logistics and supply chain management expertise, our proprietary engineering and production capabilities and the successful execution of our business development efforts.
The carrier market revenue was 46.
Up 17% year over year.
Notably our AT&T ecosystem revenue grew 28% year over year, while non Verizon ecosystem revenue grew 26% year over year.
The overall carrier market bookings were up 64% year over year.
Within the AT&T ecosystem, we achieved growth with existing customers and added new customers.
By solidifying our overall AT&T offer.
As a result, we increased our market share within the ecosystem.
Factors that resonated with the turf contractors has been our demand planning expertise.
And our reliable execution, we are working on some new projects that can further increase our market share.
And during the second half of calendar 2021, we expect demand in this ecosystem to increase driven mainly by the C band builds.
As for the Verizon ecosystem once again, we increased.
Creased, our market share with existing customers and develop new relationships.
Our tower owner of business grew 4% year over year.
Although the das installations with 1 of our tower owner customers were down significantly last year, you will remember due to building closures and limited access.
I was picking up as pandemic related limitations continue to EPS.
Our business development efforts outside of the AT&T and Verizon channels are also producing results. We have won new business with another of the largest wireless carriers in the U S and we have been awarded the contract to provide equipment.
<unk> for small cell sites for 1 of the largest broadband companies in the U S. We expect revenues from these 2 customers in the second half of the current fiscal year.
Our success in our carrier business is in large measure the result of our having implemented strategic adjustments to get the right people.
There are no cost on the targeted initiatives. We spent last year focused on business development and those efforts are now yielding results.
As overall market conditions improve we see growing demand for our product solutions and supply chain services.
Furthermore, 5 G will continue to be of key market.
People from the space, we estimate that <unk> currently represents approximately 25% of our carrier spend.
Let me turn for the commercial market, which includes all wireless infrastructure business outside of the carrier ecosystem.
And which we previously referred to.
2 as var and integrator.
The commercial market had its best revenue quarter since the fourth quarter of our fiscal year 2020 ret.
The revenues were up 10% sequentially and 3% year over year.
Bookings were up 21% year over year and our gross.
The driver of improved over 200 basis points to 24, 4%.
The largest growth sector of this quarter was with our var customers up 23% year over year.
This growth was driven by our sales focus on these vars. The continued lessening of the pandemic related impact we described.
Margins earlier.
And greater availability of inventory targeted for this sector.
Our utility business had a tepid quarter as existing projects neared completion.
Customers are currently in the investigation phase of new technology investments, including private LTE microwave and Broadway.
<unk>.
Tesco is well prepared with new vendor relationships solutions and expertise to support these opportunities as they develop.
The success, we have demonstrated with new business development in the carrier market is also being aggressively pursued in our commercial market for.
For the commercial business. This includes an emphasis on vantiv sales and the continued focus on Tesco Dot com sales, which we expect will lead to increased revenue and gross profit performance.
I will now turn to the 3 key elements of our business, namely distribution Ventas and.
Brought back there.
Starting with our distribution business, we continue to win market share develop new customer relationships and add new OEM partners.
Additionally, we are making progress with our it infrastructure modernization project, which will provide cost efficiencies and make tesco much easier to do business.
We have focused on adding new manufacturing partners to our line card identifying those who are thought leaders in wireless, particularly as private LTE and <unk> mature, we expect the growing demand for small cell solutions to support both carrier customers as well as utilities.
We recently joined the Nokia of global partner program, which allows us to distribute nokia's wide range of products and services.
As a result, we now offer 1 of the most robust and comprehensive critical communications portfolios in the market, including a range of turnkey solutions.
This.
In conjunction with our value added services, including everything from solution development and design to sites getting in logistics help to manage total project costs for our customers and minimize the deployment challenges.
Like most industries the wireless industry continue.
<unk> to experience supply chain challenges.
For Tesco. This has resulted in longer lead times for certain products. We are mitigating this by detailed and forward looking demand planning with our customers in the short term this will create some swings in overall inventory.
That Eric will.
As discussed in more detail.
But will also create a healthy backlog for Tesco bank will eventually convert to revenues.
Looking ahead, we will continue to focus on driving growth and creating efficiencies throughout our distribution business, which in turn will help us improve profitability.
Regarding our <unk>.
Sales grew 3% year over year totaling $8 million.
Bookings for <unk> grew 23% year over year and were among the highest vantiv has ever achieved in Q1, we had several new business wins, including a major home fitness company 1 of the worlds largest search.
Business, a major credit card company, a leading provider of fiber infrastructure and a large multinational technology company.
Venters large and growing customer base now includes 35 of the Fortune 100 companies.
This quarter.
Vince of launched several new products, including indoor omni and directional cvr's antennas for.
<unk> hundred 6 lead central batch antennas.
Third floor panel antennas, BT, RM 400, and Cisco Dot enabled enclosures, our focus is to ensure attachments of vantiv.
Engines with LMR, 2 way public safety Das and small cell solutions.
When we are able to sell these differentiated solutions get it together our margins improve along with customer satisfaction.
Additionally, as you May recall, we established a partnership with Cisco via the Cisco design and.
Product. This program has yielded new business and revenues with several customers. Moreover, there are additional attractive opportunities in the pipeline with national service providers and large Cisco of ours.
Turning to our software business, our device monitoring and alerting service.
Progress our general availability of what is called the GAA milestone this quarter and is now in production.
Providing customers with the single interface to monitor disparate network devices.
This last quarter, we engaged new companies on the platform and initial reviews of the service have been very.
Net.
We are presenting this product to a reseller customers to include as part of their service offerings. This will provide them with the product resale and to attach the products. They procure from our line card.
Over the next few quarters, we will continue to add new features for this platform such as remote management and.
Favorable the updates.
Although revenue in this area will not be significant this fiscal year. We believe it will begin to ramp in fiscal year 2023, our immediate focus is to add new reseller customers and new devices leveraging the strong relationships, we have with vars on our target list.
Lastly in terms of our sales channels desktop sales, both directly and online via Tesco Dot com improvements to Tesco Dot com are a part of our ongoing transformation. The benefits to date have included improvements to our customer service and order processing and we expect a longer.
Software <unk> to our profitability.
Our sales in Tesco Dot com come with higher margins and are more cost efficient to process in.
In Q1 revenue increased 15% year over year totaling over $10 million.
Engagements measured byproduct page views increased 223.
Term debt year over year and.
And hence once completed this past quarter include launching of <unk> by our research platform and adding in stock notification of emails. We are very excited about our progress and the results. We have achieved with that let me turn it over to Eric for his financial summary for.
Percent quarter Eric.
Thank you Sandeep and good morning, everyone.
I will now provide an update on our financial results. As a reminder, these income statement amounts are all from continuing operations and exclude the significantly diminished activity from our exited retail business.
This fact first quarter revenues totaled $105 million compared with $96.5 million for the first quarter of fiscal 2021.
As a result of improving macroeconomic conditions and growing market share, particularly in the carrier market.
As Sandeep mentioned the carrier revenues were a record this quarter.
These results were.
Blish, despite industry wide disruptions in the global supply chain that delayed receipt of inventory from vendors and impacted our ability to ship product to customers in each of our markets.
Gross profit was $19.7 million for the first quarter of fiscal 2022, compared with $16.5 million for the same quarter of fiscal.
'twenty 1.
Gross margin was 18, 8% of revenue for the first quarter of fiscal 2022, compared with $17..1 in the first quarter of last year.
Gross margin was up in both markets.
And carrier of the growth was the result of an improved customer mix, however margins did.
The decline from the highs in Q4 as expected.
Due to expected changes in customer mix, we believe margins will be somewhat lower for the remainder of this fiscal year.
In the commercial market product mix and pricing adjustments to offset increasing freight costs helped account for the higher margins this quarter.
20 of our focus on cost management is working well despite higher variable expenses. This quarter, primarily due to higher freight expenses associated with increased revenues sales commissions and health insurance, our overall SG&A as a percentage of revenues dropped from 22, 3% to 26%.
<unk>.
We're carefully managing our <unk> and corporate expenses, which both decreased significantly this quarter.
As we get past our major initiative, we expect both Iot and other companywide support expenses to decrease further.
First quarter of fiscal 2022, net loss was $2.2 million compared with the net.
Net loss of $4.9 million in the first quarter of fiscal 2021.
Adjusted EBITDA and adjusted EBITDA per share were a loss of $1.1 million and 12, respectively for the first quarter of fiscal 2022.
This compares with adjusted EBITDA and adjusted EBITDA per share of a loss of $3.5 million.
And 41, respectively for the first quarter of fiscal 2021.
Turning to the balance sheet.
You will notice of that inventory has increased by $16 million. This quarter. This was the result of the supply chain disruption Sandeep discussed, which has caused us to hold non constrained inventory for longer periods while.
And for complementary constrained inventory tour.
We also made some strategic investments in areas, such as <unk> inventory, which did help us gross sales however, our visibility into the supply chain and healthy customer demand based on our backlog gives us confidence that this number will be significantly lower by the end of Q2.
While weighted.
The balance on our $75 million line of credit also increased by $9 million. This quarter. This was partially offset by an increase in cash of $1 million.
The increase in inventory did help drive some of the increase from the line, but payables were also up by a slightly less amount.
The remaining increase is being driven.
Creating results investments and changes in other working capital amounts.
We did receive our fiscal 2020 income tax refund in July so next quarter will be positively impacted by that $4 million receipt.
From a financial perspective, the revenue increases, especially the increase in book.
Biopsy gives us confidence that we have turned the corner and the improving market conditions and execution of our strategy are beginning to deliver much better results with that I will turn the call back over to Sandy.
Thank you Eric in closing.
We had record revenue in our carrier business and the highest.
Revenue in our commercial market in over a year we're.
We're gaining market share.
We are adding new customers and new OEM partners.
Our Tesco Dot Com website has demonstrated improved metrics across the board.
We've made progress on each of our 3 pillars that I first discuss.
Bookings due in January of 2020.
And now that the pandemic related challenges appear to be easing the indicators of the progress of our turnaround are more apparent.
We expect stronger demand a healthy backlog and the continued execution of our turnaround strategy to lead to strong year over year growth.
First within both the carrier and commercial markets.
At the same time, we remain focused on cost controls.
And expect significant improvement in our overall profitability of this fiscal year.
With that we will open the call for questions. Operator. Please go ahead.
At this time, if you would like to ask a question. Please press star followed by the number 1 on your telephone keypad again. It is star 1 we'll pause for just a moment.
You have for your.
The first question from the line of of Maggie Nolan with William Blair.
Thank you hi.
The supply chain shortages, how does the pace of supply compared to 3 months ago, and and what are your expectations or what is kind of baked into your outlook for the remainder for yet.
Hey, good morning, Maggie Thanks for the question of when.
We see roughly the same performance our lead times have have increased.
And they are about the same.
And thinking about the rest of the year.
We don't expect much improvement we believe we will have to live with this for the rest.
For the year as I said on the call we have several things that we're doing to mitigate them.
The first is longer range planning with our customers because they see the pain as well so getting ahead in terms of.
Future business future project is the way to mitigate the ethane and Thats, what we are focusing on.
Okay. Thank you and then.
In terms of site access can you provide a little bit more of an update around the.
The environment, there of the ability to get on site and as.
As well as of the expectations for that aspect of the Covid.
Of that impacts for the Roman.
Indirectly yes.
Thanks, Maggie and good question.
I will underscore a couple of comments I made.
During the first part of the discussion so within both our markets the carrier market as well as the commercial market, we see much improve.
<unk> performance.
Environment.
Relative to access the sites permits projects opening up I think that is 1 driver for our results.
So we're very excited about that and.
Even into this quarter, we are seeing that continue.
Okay. Thank you.
And then I know you're expecting of the spend related to the IP initiatives to decrease.
But is there a little more color that you can get around the magnitude of that the timing of that going forward. Thank you.
Eric do you want to.
Yes sure Maggie.
We expect that to start the slowdown here in the second half of the year.
And definitely by next year of significant reduction in the.
The cash outlay for a variety of expenses and then we also expect that project to have some significant benefits across the entire organization.
On efficiencies as well.
Alright, Thank you all for the update.
Thanks, Greg Thanks Maggie.
Oh.
Your next question comes.
From the line of Tim call with the capital Management Corporation.
The good thing and improving and positive outlook.
With your new Nokia.
<unk>.
Will that be using the.
Thanks for the former retail.
Inventory and business, we're using or do you have to add new warehouses.
So we're not planning on adding the warehouses Tim.
Tim.
Existing operations and the focus of Nokia. This is Nokia is.
Their equivalent of carrier and commercial portfolio of focus on the carrier segment.
Like redo today, plus utilities transportation, it's much more of the commercial business as we described a very specifically the parts of the portfolio that we are excited about our around small cells microwave broadband. So we don't we're not anticipating having to.
Add warehouses, we will use our continuing operations to support.
Nokia and we're excited that this will give us the trust.
In the verticals that I just mentioned.
The <unk>.
Inventory net retail.
It used to take in your warehouses have you.
Sort of convert that and use.
We use that.
The space for other uses the App.
Polluted absolutely out of retail inventory is.
You know as Eric said much diminished that activity is.
Got it all essentially all gone at this point and we've been able to use that inventory and repurposing.
For our commercial and carrier business.
Well, thank you for outlining of a bright future looking forward to seeing more of it.
Thanks, Thanks for your comment and thanks for joining the call.
Once again, if you have any questions. Please press star followed by the number 1.
<unk> been able to telephone keypad.
Your next question comes from the line of Bill <unk> with Titan capital.
Thank you I had a group of questions and I'd like to start with.
The point of clarification did we hear correctly that you were expecting inventory to.
On your significantly lower than the $69 million at the end of the year, where were you referencing something else.
Yes, we expect the inventory of that's currently on the balance sheet to be significantly reduced next quarter.
Yes.
The increased significantly from the end of the fourth.
<unk> told now, but we expect of some of the supply chain issues, we work through them.
And for the.
We run a little bit tighter with some of those customers.
<unk>.
We expect that inventory to reduce not to the point of where it was at the end of the year I think the number was a little bit artificially low but somewhere in between.
Quarters at the end of the year in order to close at the end of this quarter.
Great. Thank you.
So would the implication then be that you will be generating cash in the second quarter.
We would hope to see that happen.
We are still working through a lot of the payables are also on the higher side right.
So.
We will be also of paying for a lot of that inventory at the same time, so they will somewhat offset.
But yes, we would.
Especially with the cash payment from the tax amount coming in to have some positive cash flow of this quarter.
Thank you.
And then.
<unk>.
Just a point to.
Understanding here does this 37% bookings increase in.
Imply the sales would have been up 37% had you not had the supply chain issues or is there some friction in the area that we're not fully of thinking about.
Good morning, and good early morning to you. Thanks for the question of.
So theres always backlog that we have usually much much smaller than where we are today. So the way I think about it is it's not just the bookings growth, but also the the shipping growth debt you should consider so those 2 numbers is.
As we described was 37% bookings growth shipping growth of 9%. So it's somewhat arbitrary to try and say how much more we would have shipped but that number would likely be somewhere in between those 2 right. So I think you can do the math could we have shipped more in the absence of supply chain initiatives.
Absolutely, we'll be shipped more of what it will.
It will be flushed out the healthy backlog that we've created absolutely.
Great. Thank you.
And.
In the press release, you made reference to stronger demand.
Ahead of us.
Susan comment suggests that bookings strength will strengthen from here.
We are optimistic for 3 reasons Bill that I said 1 of.
Just reopening of America, right and when you compare year over year, we have a very favorable view of the fuel.
<unk> share second we are seeing increasing projects Inc.
Give color and Eric did as well into where we are seeing that demand from so we are positive about the demand we're seeing.
Bullish about <unk>, it's about 25% of our revenue under the <unk> and earlier technology.
Build outs will continue they don't win immediately but the new technologies pick up.
For specific marketing launch plans.
Of that our customers or their customers app. So we're bullish about that a lot of the infrastructure spend should be positive as well and then not to take away from the fact.
That all.
Our own turnaround strategy in terms of efforts we launched.
A few months ago of many months ago, they are going to bear fruit and youre seeing the results of that.
That's helpful and just the.
Jump on to that carrier comment.
You had record.
Of the news in the carrier business.
Is it the correct assessment that the carrier industry spending.
Is not at a record and if that is correct do you have the data at where the industry spend is relative to the prior peak.
So we.
We see the same reports fill that Im sure you do in terms of.
Carrier Capex budgets and walk.
The Abi and other analysts project so.
So that Capex view has not increased substantially right. What we are seeing is really our increased market share.
<unk>.
Both within customers, we had before right through better performance and then we have absolutely 1 new logos of new customers right not just this quarter, but the quarters leading up to these.
These results, we also announced in other sense of optimism for us going forward as we have of new customer.
We're not naming them, where the large nationwide wireless carrier plus of cable broadband provider also nationwide those revenues or bookings were not included in this quarter, we expect them to be.
Additive to our business in the second half of this year.
Thank you I appreciate that and.
Jumping to the commercial business.
For a moment.
What are the metrics that you can share with us today or that we should be looking at that are demonstrating the debt commercial segment is is turning.
Okay.
Yes, so 3 things to reiterate that we said I mean, it's the same metrics, though from the Q used from a carrier perspective, it's the bookings growth, which was pretty large this quarter. It's the year over year revenue growth that we look at and if you want.
The core sub ledger detail of much of our Vantiv business goes through the commercial channel. So the advent of bookings growth the vantiv revenue and margins plus Tesco dot com and again.
Our online sales are much of it comes from the commercial segment. So the growth there.
I think as an early indicator.
Thank you and then lastly, and I'll turn it over to someone else.
John.
The the positive adjusted EBIT.
The implied that 1 quarter of this fiscal year you will have.
The positive net <unk>.
As of <unk>.
Or maybe I should ask the question in the sense of what's your confidence that that would be the case.
Yes, I don't.
We didn't obviously give that kind of detail.
But.
Isn't necessarily mean that.
We don't we try to avoid.
The quarter lease with all of the supply chain issues going on so is it possible. Yes is it something we're going to say now no.
Too much uncertainty on a quarter to quarter.
For us to me of what the defendant really say, yes, or no to that question.
Alright, Thank you and thanks for taking all of my questions.
Thank you Bill.
There are no additional questions I would like to turn the call over to management for closing remarks.
Thank you operator, and thanks, everyone for joining us today, we appreciate your support of Tesco.
And also thank you for the 2 task force team members for all of their work dedication through.
For the last several quarters that has made these results possible.
This concludes our earnings call of a nice day.
Yes.
Okay.
This concludes today's conference call you may now disconnect.