TESSCO Technologies Incorporated

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2021 Tesco Technologies Inc. Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require further assistance, please press star 0. It is now my pleasure to turn the call over to your speaker today, Mr. David Galicia. Sir, please go ahead.

Good morning, everyone, and thank you for joining Tesco's Q3 2021 conference call. Joining me today are Sandeep Mukherjee, Tesco's President and Chief Executive Officer, and Eric Sputelnik, the company's CFO. Please note that management's discussions today will contain forward-looking statements about anticipated results and future prospects. Forward-looking statements involve a number of risks and uncertainties, and Tesco's results may differ materially from those discussed today. Information concerning factors that may cause such a difference can be found in Tesco's 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'd like to turn the call over to Sandeep Mukherjee, Tesco's President and CEO. Sandeep?

Thank you, David, and good morning, everyone. Thank you all for joining us, and I hope you and your families are continuing to stay safe during this ongoing pandemic. Our Tesco team continues to show great dedication and tireless effort in navigating this public health crisis to provide customers with communications solutions to meet critical needs. While we are still seeing significant pandemic related project delays, the ongoing vaccine rollout provides us with some optimism. As you know, at the beginning of our fiscal year, we embarked on a three pillar strategy to drive growth and improve profitability. This strategy includes first, Simplifying and growing our value-added distribution business. Second, industrializing our vent of operations while scaling our capabilities as an industry innovator. And third, investing in value-added and managed services offering to resolve complexity and pain points for our customers. In the third quarter, we continued to make substantive progress on all aspects of the strategy. while significantly improving our year-over-year bottom-line performance. During the quarter, we completed the sale and subsequent exit from our retail business, an important step in our turnaround. We continued to capture share in our carrier ecosystem business. We grew certain VAR and integrator market verticals sequentially, such as utilities, mining, oil and gas, and created new relationships with community wireless and industrial IoT partners. However, the overall market remained sluggish due to the pandemic. We advanced product innovation in our vent of business and have announced additional packing. And finally, we made progress on our value-added and managed services offering as we entered customer beta testing. As a result of the retail sale, and the completed consent solicitation, this quarter includes two unique significant amounts that essentially offset each other. The sale of retail resulted in a $3 million gain, which is included in income from discontinued operations. This exit allows Tesco to focus solely on the higher margin, faster growing wireless infrastructure construction industry. In doing so, we are deploying all our assets to capitalize on the widely recognized unprecedented rollout of new technologies, including 5G, private LTE, CBRS, and IoT. As a result of the consent solicitation, which wrapped up in December, we incurred $3 million worth of expense, which is included in continuing operations. The consent solicitation was a long and difficult process and unfortunately a costly one. However, the resulting board is now unified in optimism about the future, and we are executing on the strategy to capitalize on Tesco's exciting growth opportunities. Before I speak further regarding our progress in our strategy during the third quarter, I will walk you through our Q3 performance in each of our reported markets. Let me start with our VAR and integrator business. Our VAR and integrator business includes all wireless infrastructure business outside the carrier ecosystem. This market continues to be significantly impacted by the pandemic, and our business was uneven, as some verticals experienced a return to growth while others have yet to rebound. Many of our key VAR customers have temporarily reduced their workforces. in light of the challenges caused by delayed projects, limited access to key venues, and government approval delays. It is difficult to predict exactly when these issues will be resolved, but our team is aggressively working with customers to continue providing them with exceptional service. On the positive side, we're also seeing some very encouraging drivers that we believe will lead the post-pandemic rebound. I'll highlight a few. The utility segment continues to rebound, driven by both the distribution automation and grid modernization initiatives, as well as adoption of distributed energy resources and the drive for clean energy in the United States. We leveraged our vertically focused sales force to drive a sequential growth of 48%. Key utility wins this quarter include a variety of products and solutions, such as providing both Ventiv and other key brands for modems, power, and antenna solutions, enclosures, and mounting hardware, several mobile fleet solutions, where we are outfitting fleets with mobile data mounting products, and base station infrastructure products, such as custom filters and base station antennas for land mobile radio installation. The CARES Act funding and other digital initiatives are driving projects with community wireless, coverage for K-12 education communities, and bringing broadband to underserved geographies. Our venture portfolio, OEM partnerships, and our recently announced partnership with Federated Wireless is helping Tesco gain relevance in these solutions. In upcoming quarters, we expect to see strong customer spend in public safety DAS installations. Public safety DAS is a federal mandate reinforced by increased regulations in a growing number of states. This combination of growth and increasing complexity presents the ideal opportunity for Tesco to bring our truly differentiated value to building owners, construction companies, and value-added resellers. We're working with the top DAS VARs to provide the solutions that will meet the strict guidelines. We anticipate demand for remote monitoring projects, many of which will include rent of enclosures. Demand for both distribution automation and remote monitoring solutions will continue to be strong, and Tesco will play a key role. Turning to the public carrier market, the public carrier ecosystem has not been as impacted as the VAR and integrator markets. And I'm pleased to say that Tesco is consistently capturing share in this part of our business. Our sales grew 14% year over year and 4% year to date this quarter, despite some pandemic delays. While this market will continue to be subject to significant quarterly fluctuations, our market share gain and long-term growth opportunity in this market are exciting. Our strength in the carrier ecosystem is due to our recognized logistics and supply chain management expertise, our proprietary engineering and production capability, which address needs that are unmet by our competitors, and the outstanding relationships we have developed with companies engaged in the construction of the nation's wireless infrastructure. Our share growth with AT&T turf vendors this quarter included a new two-year contract with one of the largest turf vendors, a new prominent position with a top-tier AT&T turf vendor, and increased share with another top-tier vendor. We also successfully maintained our share with other top turf vendors. This quarter, we saw increased opportunity directly with OEMs by providing 5G installation kits and expect continued demand for these kits over the next few years. We continue to make good progress with our tower customers. During this quarter, we provided lighting solutions for the tops of towers, prototype ventive enclosures for onsite monitoring, and prototype ventive enclosures integrated with OEM equipment for site surveillance. We're also gaining market share among rural carriers, working closely with our top manufacturer partners. We have long discussed the opportunity that we see from the adoption of new technology, and we are excited to see 5G spending continuing to increase. In fact, we estimate that approximately 20% of our third quarter carrier revenues relate to 5G projects. With our improving market share and ongoing investments by carriers in 5G, we expect that number to increase. Regarding our retail business, as I mentioned earlier and as announced last month, in December, we closed the sale of most of the company's retail inventory and the Ventive brand as it relates to mobile device accessory products. Prior to that, we executed very well on the managed decline of our retail business, which we have discussed in prior quarters. You should note that we will continue to own and operate the Ventive brand outside of retail. Eric will give you more color on the retail results later in the call. We have previously stated that we are undergoing an IT transformation consisting of enhancing and modernizing our core systems and enhancing our digital platform. Our work on enhancing and modernizing our core systems is progressing well, and we expect to launch many elements shortly after the end of our fiscal year. The updated system will ultimately allow us to streamline our procedures and produce efficiencies in many parts of our backend operations. We also expect benefit in improved customer service. We have made several improvements to our digital platforms. For example, we created three new landing pages related to the vertical industry initiatives I referenced earlier. As part of our content expansion efforts, we have published new market and solution-specific guides. We piloted several marketing campaigns to a select group of small and inactive customers, and this effort resulted in significant sales gains with those customers. We continue to conduct customer interviews to gain greater insight into what our customers require and how they want our website to best service their needs. This input has been invaluable as we refine and enhance our website. Regarding our three pillar strategy, we continue to progress on each area. The first pillar relates to our core distribution business. As I have discussed, we are seeing strong market share gain in the carrier business, and we believe we also expect the progress to impact our results once the VAR market rebounds. The second pillar of our strategy is to industrialize our Ventiv operation, scaling our capabilities, and driving innovation. Recent progress includes our Ventiv roadmap, now contains modular, flexible, and agile product design. Ventiv product has been utilized in a large number of Wi-Fi deployments, many related to community wireless projects driven by the CARES Act funding. We oversee wedge enclosure and have sold this in numerous sports facilities, including professional football and soccer stadiums. We introduced an outdoor broadband antenna supporting LTE, 4G, 5G, and CBRS spectrum. We provided antennas and mounts for the U.S. headquarters of one of the world's largest logistics companies. Our warehouse antenna is one of the five finalists nominated for the Product of the Year by Wi-Fi Awards. We're gaining traction with our Cisco Design-In program, with the greatest impact coming from community wireless and industrial IoT projects. This progress was obscured by some project delays that resulted in lower year-over-year rent of revenues this quarter, which impacted the gross margin in the VAR market. However, our pipeline is very strong and we expect to rebound inventive revenues in the fourth quarter. Our third pillar is our development of value-added and managed service offering to resolve complexity and pain points for our customers. We're building out an array of services that will ultimately generate high margin and recurring revenue. We're also expanding our focus on broader utilization of our industry-leading design services And this has resulted in a number of high-profile wins, such as highly reliable and resilient network design to provide two-way communication between county-wide fire agencies and their dispatch centers, innovative power solution for a DAS system in a large football stadium, and RF designs for large enterprises. With that, I will turn the call over to Eric for the financial review.