Q4 2022 TESSCO Technologies Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the Q4 2022 chest Cold technologies earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question at that time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again press Star one.
It is now my pleasure to turn today's call over to Mr. David <unk>. Please go ahead.
Good morning, everyone and thank you for joining <unk> Q4 fiscal year 2022 conference call. Joining me today are Dave Ritchie, Tesco as President and Chief Executive Officer, and Eric Potomac. The company's CFO . Please note that managements discussions today will contain forward looking.
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 in test goes public disclosures, including the company's most recent Form 10-K and other P.
Arctic reports filed with the Securities and Exchange Commission with that introduction I'd like to turn the call over to Sandeep Mukherjee, <unk>, President and CEO Sandeep. Please go ahead.
Thank you David Good morning, everyone and thank you for joining us today.
Our excellent fourth quarter performance capped a fiscal year of tremendous progress in the execution of our turnaround.
We met or exceeded all of our guidance targets not only the adjusted targets, we discussed last quarter, but also those communicated in July including positive adjusted EBITDA.
And most importantly, we continued to see strong demand for our products and services, which resulted in record annual bookings and a record level of backlog at our year end.
For full fiscal year 2022, our adjusted EBITDA improved from a loss of $12 8 million in fiscal 2021.
Positive $300000 in fiscal 2022.
This is an improvement of about 4% of adjusted EBITDA margin and is a significant turnaround in only one year or.
Our success was due to the successful execution of our strategy, which enabled us to take share in a market that continues to be gripped by macroeconomic challenges.
Overall, we are in an excellent position as we enter our new fiscal year we.
We ended fiscal 2022 with record revenues.
Good bookings and a record backlog and our momentum continues to build without turnaround strategy.
Eric will talk more about our business outlook later in the call, but we are projecting another double digit revenue growth year, and the continuation of improvements to our profitability.
I will now walk you through the results and highlights of the past quarter and the following format.
Our two markets carrier and commercial.
Second the three key elements of our business, namely distribution Vantiv and software.
And third the performance of Tesco Dot com.
Okay.
Q4 marked another strong quarter for our carrier business.
Revenue was up 27% year over year and gross profit was up 3%.
Bookings remained strong with growth of 6% year over year, and our backlog was over $32 million.
Gross margins in this market did decline this quarter due to changes in customer and product mix.
Last year's fourth quarter was unusually high due to some one time pricing and cost benefits. So the year over year gross profit comparison for the quarter is not as favorable as the revenue growth.
For the full fiscal year, However, gross margins increased from 11, 1% to 11, 6% in this market.
For the full year, we posted record carrier annual revenues with a 27% increase over fiscal 2021. We also had record annual bookings, which grew 29% and record backlog that grew 82% from fiscal 2021.
Furthermore, as I mentioned, we were able to achieve this growth with higher gross margins.
Within the tier one carrier ecosystems revenue this quarter grew 28% year over year.
We achieved this growth with existing customers as well as new customers in.
In Q4, our strong customer relationships and deep experience, serving this sector helped us increase our market share.
This included selling new product categories and services as well as serving new regions.
As previously announced we had a big business win with one of the largest wireless carriers earlier this year and began shipping to them in <unk>.
Our business with this carrier continues to grow in Q4, and we expect that growth to ramp throughout fiscal 2023.
Our tower business significantly grew this quarter up 39% year over year.
Our largest stellar customer awarded us an additional business line that we expect will have steady growth throughout fiscal 2023.
We have begun to place our vantiv products without our customers and expect Ventas product sales to continue to grow. This fiscal year. We also have made considerable progress with many of our general contractor customers developing strong relationships and supporting them across multiple tier one carrier project.
As an example, we won business with a contracted that supports carrier networks and focuses on das installations for large enterprise locations.
We're also excited about our progress with edge data Center solutions and are working closely with integrators and general contractors to develop and deliver these solutions.
To mitigate the global supply chain disruptions that have caused longer lead times, we have diversified suppliers, where possible and have been very deliberate in our advanced product purchases.
Our continued success in this market stems from a number of factors.
First our logistics and supply chain expertise.
<unk>, our proprietary engineering and production capabilities number three our strong relationships with our existing customers and number four the successful execution of our business development efforts.
I'll now turn to the commercial market, which includes our wireless infrastructure business outside of the carrier ecosystem.
Q4 was a strong quarter for commercial revenue with a 7% increase year over year gross profit increased 16% year over year as vendors revenues were a record high this quarter.
For the full year, the commercial business posted 6% growth at.
At the same times bookings increased 16% and the record backlog was up 161%.
Additionally, gross profit was up in the commercial business by 12% as a combination of strong vendor sales and pricing strategies drove higher gross margins.
As mentioned global supply chain issues persisted this quarter, but provided some opportunities as well we.
We have been very pragmatic and selling customer expectations regarding lead times and our customers tell us that they trust us to give them an accurate picture of the market to mitigate long lead times, we have utilized our demand planning and supply chain teams to work directly with many of our customers.
Several of these customers have provided us with blanket purchase orders to help overcome inconsistent lead times and to keep their projects on course.
This has allowed us to more effectively forecast and to order material to meet their needs.
As a result, we have seen very lower levels of order cancellation, and we consistently stress test our backlog, which is still very solid.
We continue to see significant growth in the SaaS space across enterprise cellular and public safety.
Many states have pending regulations for enhanced public safety communications that should drive the kind of demand we have seen in growth markets like Florida as such we have aligned our stocking and solutions designs accordingly.
Hospitals continue to be a large market segment that we access through our das integrators programs like AT&T is enhanced in building. Our EIB program have opened multibillion dollar opportunities and we expect that growth to continue this fiscal year.
Our var market grew significantly, particularly in the network var, and national solutions providers, which grew 23% and 57% respectively year over year.
We work closely with our customers and use gaslog forecasting to collaboratively plan for and to accommodate their projects.
Turning now to the three key elements of our business specifically distribution.
Ventas and software.
<unk> with our distribution business, we continue to win market share and develop new customer and manufacturer relationships. Our line card is one of the most robust critical communications portfolios in the market and include among other solutions products for public safety Das cellular das broadband.
Small cell macro site and CBRE slash private LTE, we have extensive offerings for LMR and do we have solutions public safety Das commercial that and test solutions in fiscal 2022, we achieved double digit growth with each of our top five supplier.
<unk>.
We continue to augment our turnkey offerings and our value added services, including solution development and design site getting supply chain logistics and provide cost efficiencies for our customers and reduce complexities for their deployments.
Turning now to Ventas.
On a full year basis, Ventas had record revenues bookings and backlog with revenue growing 20% bookings growing 27% and backlog increasing by 132% vs.
These records were achieved despite global supply chain constraints and demonstrate the results of our strategic initiatives.
Key market drivers for Ventas include five G private LTE, NCB Rs, which continued to increase opportunities across multiple verticals.
Federal funding increases for infrastructure have driven opportunities for ventas.
As configured power systems, and we have increased market share with existing and new customers.
Last quarter I discussed our work with the world's most valuable automaker.
This past quarter, we added two new configurations goodbar solutions for them, providing remote power via fiber.
These were used in their parking lots to provide access to cameras and network switching without having to lay power cable.
This past quarter, we launched several products, including for Das our low Perm indoor cellular das antenna and then indoor public safety Das low profile antenna.
For mobility and fleet.
Home omni antenna with factory connectors.
For power systems, a universal broadband enclosure ideal for remote radio heads industrial networking switches and routers edge computers and rack mounted devices.
And for Wi Fi Universal antennas.
Four by five gigahertz fixed sports with detachable jumbos and eight dual band raised floor, Thailand tenants.
At the same time, we have taken several steps to mitigate supply chain disruptions.
We have adjusted our buy cycles to align with lead time increases.
We use extensive early forecasting and advanced planning for ordering material for customer projects.
And we are continually seeking to identify multiple sources of supply for key components.
Adding our software business, while revenue has not been material to this point, we made progress in Q4, we have doubled the number of devices, we support and increase the number of brands supported on our platform.
Customers and prospects tell us that our software offering is compelling in that first the automated system, we launched last quarter to expedite onboarding is highly effective cutting traditional onboarding from weeks to days.
We have special relationships with vendors that assist us in getting technical information to allow for quicker onboarding.
Our solution is device agnostic.
And our user interfaces are easy to navigate versus other platforms with more complicated workflows and interfaces.
We are working on a number of opportunities and expect revenue from this business to begin ramping this fiscal year.
Lastly in terms of our sales channels.
<unk> cells, both directly and online through <unk> Dot com.
We continued our intense focus on both attracting new customers to Tesco dot com and migrating existing customers onto that platform.
Which resulted in Q4 revenues of over $9 4 million.
We also experienced 136% increase year over year to $1 6 million product detailed views. This quarter. New features include an exit pop up window to capture customer E. Mail addresses. We also initiated Google performance, Max which is a more efficient AI based AD placement tool.
Using paid search to engage customers throughout their purchase journey.
With that I will now turn over the call to Eric for the financial review Eric.
Eric Thank you Sandeep and good morning, everyone. As a reminder, the income statement amounts that are referenced are all from continuing operations and exclude the significantly diminished activity from our former retail business.
Fourth quarter revenues increased 14, 5% year over year to $101 6 million we achieved.
These results despite industry wide disruptions in the global supply chain, which delayed receipt of inventory from vendors limited our ability to ship product to customers and contributed to year over year fourth quarter sales bookings growth of 11%.
As Sandy mentioned, we ended the quarter with another record level of backlog totaling $75 million at the end of Q4 and up 120% since the start of the fiscal year and up 10% over Q3.
Gross profit was $18 9 million for the fourth quarter of fiscal 2022, compared with $16 8 million for the same quarter of fiscal 2021.
Gross margin was 18, 6% of revenue for the fourth quarter of fiscal 2022.
Compared with 19% in the fourth quarter of last year.
This was largely due to an unfavorable customer mix, our carrier market and larger excess and obsolete inventory charges, partially offset by pricing increases and a 58% increase in higher margin inventive revenues.
We remain focused on cost management SG&A expenses as a percentage of revenues continued this year's trend of being significantly lower than the comparable amount from last year, representing a 19, 2% this quarter as compared to 22, 1% in last year's fourth quarter.
We achieved this reduction despite a significant increase in freight expense caused by global supply chain disruptions.
Fourth quarter fiscal 2022, net loss was $1 million up slightly from the fourth quarter of fiscal 2021.
Last years net loss was positively impacted by a $2 million benefit.
From income taxes related to our ability to carry back losses under the cares Act.
Adjusted EBITDA was a positive $7 million in Q4. This compares with adjusted EBITDA loss of $1 9 million a year ago.
Turning to the balance sheet.
Product inventory increased by $4 4 million in the fourth quarter.
This was in support of managing through supply chain disruptions.
We remain strategic in our overall inventory management.
In the face of persistent supply challenges.
Accounts receivable increased by $7 1 million in the fourth quarter.
This is reflective of a back loaded sales quarter that is typical for our fourth quarter and was even more pronounced this year as a result of supply chain challenges.
The balance on our line of credit decreased by approximately $1 4 million this quarter.
However, as we discussed last quarter, we received $6 5 million on our mortgage related to our Reno facility.
That mortgage is shown on the balance sheet, primarily as long term debt.
We ended the year with income tax receivables of $7 4 million.
While the timing and receipt of these payments is entirely dependent on the IRS. We have received $3 million of this receivable subsequent to year end.
Our results continue to trend in the right direction and I am pleased with how we are executing on our strategy. Despite macro level headwinds impacting our business. We believe that we will continue to see improvements in our results.
Accordingly, we are now projecting for fiscal 2023 of the following revenue of $450 million to $475 million, which would reflect growth of 8% to 14% a net loss of $5 million to $2 1 million, which compares to a net loss of $3 3 million in fiscal year 2022, and adjusted EBITDA.
Between 4% and $7 million, which compares to $3 million in fiscal year 2020 to ensure our major achievements for fiscal 'twenty two.
Revenue growth in both of our markets improved gross margins significant reduction in SG&A as a percentage of revenues and most importantly positive adjusted EBITDA for the year with that I will turn the call back over to Sandy. Thank you Eric.
We start the Q&A I would like to underscore our accomplishments from fiscal 2022 and explain how they set us up very nicely for fiscal year 2023.
In fiscal 2022, we met or exceeded all of our guidance targets. We provided in July of 2021 at the start of our fiscal year.
We grew revenue in bookings year over year by 12% and 21% respectively. Despite supply chain constraints.
Our strategic initiatives with Vantiv resulted in a record revenue year, our cost management and efficiency efforts resulted in improved operating margins. We continue to manage our cash well and gained additional liquidity through our increased ABL facility and the mortgage on our renal property.
We ended the year with a positive adjusted EBITDA.
With an improvement in adjusted EBITDA margin of 400 basis points in one year.
And finally, we ended the year with a record backlog of over $75 million.
Which sets us up very nicely for fiscal 2023, as Eric mentioned, we are projecting the following for fiscal year 2023 and.
And 8% to 14% growth in revenue and.
And adjusted EBITDA of between 4 million to $7 million, which would be a margin improvement of 400 to 500 basis points from fiscal year 2021 to fiscal year 2023.
Furthermore, we continue to make progress on each of our three strategic pillars.
And the evidence of our turnaround has never been more apparent.
With that we will now open the call for questions.
Yes.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad will pause for a moment to compile our Q&A roster.
Okay.
Your first question comes from the line of Bill <unk>.
With Teton capital your line is open.
All right. Thank you that's Titan capital.
Let's start with the supply chain.
Are you seeing any signs of it improving and if you are.
Are you anticipating net.
Walk Downs in China reached.
<unk> layer is going to reverse any improvement.
Good morning, Bill Thanks for the question.
No we are not seeing any material movement in the supply chain.
Area product lead times are.
Where they are as we have discussed in prior calls.
Used to be weeks in terms of product availability is now months Bill.
We have focused as we as we said on the call on diversifying our dependency on suppliers and supply chain. So that's where we are maneuvering, but in short we don't see any material change in the supply chain issues.
Thank you and then kind of using that as a lead in the backlog in the commercial business grew more.
Sequentially this quarter than it has in prior quarters.
Led to what I'll call, an outsized increase in your backlog this quarter.
The primary reason for that Bill is our increased sales activity better sales. So our bookings grew.
Which is what drove the backlog.
Congratulations.
Let's jump to <unk>.
I guess another another area is good news.
You referenced sales were up 58% that's.
Frankly, just a monster number.
You talked to it in your opening remarks, but do you have more detail that you can share.
Relative to what's leading to that success with vintages I mean is it as simple as it is winning some tower customer business and that's really the.
The driving factor or is there more to it.
Well at the end of the day when you win purchase orders with customers and you ship, that's what drives your revenue and your bookings.
But in terms of sub ledger details. If you will bill will be Vantiv has been a strategic area of growth for us and investment. So some of the underlying drivers are we've invested in sales specifically for Vantiv, we have invested in supply chain.
Inventory as well as we have greatly simplified.
Number of Skus, we carry and as we have talked about in past quarters, we have really shifted the dial from running this business in project mode versus product mode. So we have available inventory that for the most part can be customized very very easily to drive deployment to ensure that our overall strategy.
<unk> that is yielding fruit preventive, but at the end of the day, it's about winning customers and.
Shipping product, which we have done.
Excellent and then.
Lastly, relative to the to the SaaS business.
From what you see today.
Is this a business that could ramp.
I'll, just say extraordinarily fast or.
Should we should we have a much more conservative view.
How quickly you can ramp.
Ramp devices on.
So on that software.
So what we have said bill is that we expect revenues to ramp.
During this fiscal year. So that's the expectation I would like to leave you with in terms of what's giving us confidence is the work we have done in getting to launch. This product. This was a brand new area for Tesco, we've done that in working with select customers and many of them.
To prove in how we onboard devices.
What opportunities. These this solution creates for our customers that is behind us. So we have treated this as a startup if you will investing in product and working with customers at the end of fiscal 'twenty. Two we've invested in a small sales team right startups due and we now have lead.
<unk> from the broader desk Colby organization sales organization and we are following up on sales, which we will do and that effort will ramp through the year.
Okay. So.
This next question is from a point of ignorance.
Is there a small also say a small number of large var.
Ours is that.
That youre working with and that would create ramp this.
I had a really steep pace or is it lots of smaller customers.
At.
Is that.
You need to be attentive to it.
I pose the question and the spirit that it seems as if your integration is as easy as you described.
It sets up for a.
For an opportunity for a very steep revenue ramp.
And yet.
Particularly if its a small number of large customers of that.
You'd be working with that initially right out of the gates.
Given that our go to market as.
SaaS, which is software as a service we certainly want to get to the latter revision that you put on the table, which is a large number of customers were given how we have invested especially in our sales organization. We begin with a set of select vars, who have been trialing the product and helped.
Them get to market.
Thank you well, we'll look forward to hearing more in future quarters.
Great quarter.
Bill and thank you for the questions.
Again, if he would like to ask a question press star followed by the number one on your telephone keypad.
Next question is from the line of Maggie Nolan with William Blair. Your line is open.
Hi, Thanks for taking my questions. This is jesse on for Maggie.
Can you talk more about the investments in the sales team.
How has that progressed over time and what are your plans.
Hey, good morning, Jesse Thanks for the for the for the question.
We want to our focus is to grow our business. So we have focused on the carrier and commercial segment on what we have described as new business development new business generation.
So this is adding new logos, adding new customers and adding new regions for existing customers.
And we have been able to do that with both improving our sales processes, our sales discipline plus investing in the sales team.
On the Vantiv side, we have invested.
In direct sales resources across the country in different regions.
And we're also working on using channels to get beyond our traditional footprint in the U S into Latin America, Canada et cetera.
Okay.
And then finally, Jesse as I said with the majority of our SaaS.
<unk>.
And how receptive customers have been we've taken the next step to create a small sales team to drive those sales efforts.
Okay.
That's helpful and then as my follow up.
What.
Or are there any specific value added services that are particularly resonating with clients, especially.
As you talk about the supply environment not changing.
Yeah from a.
The broader perspective, Jesse I mean, we are investing in more complete solutions.
And stocking with respect to solutions in order to support that as part of the solutions, we go to market with and help our particularly var customers and some of the end users. We help them with solution design. So these are design services, we've spoken in past quarters about our focus.
On tower power.
And in building RF distribution type of design services that we couple with our product sales and we have.
Improved on that by adding Vantiv cables antennas power solutions, so that Tesco can be the one stop shop.
As our customers go to market.
Are the types of services that we have.
Monetized and.
Driven through fiscal 2022, moving forward into fiscal 'twenty three the SaaS offering we talked about think of it as another value added capability that we will attach to our solutions.
Hope that answers your question Jesse.
Yes. It did thank you.
There are no further questions at this time I will now turn the call back to management for their closing remarks.
Thank you Brent and thanks again, everyone for joining us today, we appreciate your support of Tesco.
And I also want to take this opportunity to thank the Tesco team members for all of their hard work and their dedication.
We look forward to speaking with you again next quarter. This concludes our earnings call.
Have a nice day.
Yes.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may now disconnect.
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