TESSCO Technologies Incorporated

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Tesco 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 will need to press star 1 on your telephone. 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, David Kalustyan from Sherry Merrill. Thank you. Please go ahead, sir.

Good morning, everyone, and thank you for joining Tesco's Q4 and fiscal year 2021 conference call. Joining me today are Sandy Mukherjee, Tesco's 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, 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 at Tesco, are looking forward to a post-pandemic normal. Our results this quarter reflect the lingering effects of the pandemic, along with the more recent impacts from disruptions to the global supply chain. We did, however, experience a 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 our strategy for last year, we certainly envisioned 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 industry-wide growth, gives us confidence as we begin the new fiscal year. The four elements of our strategy were to divest our retail business, to allow total focus on the wireless infrastructure construction market, drive growth and efficiency in our core distribution business, develop our vent 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 cycles. With the sale of our retail assets in December, the fourth quarter of fiscal 2021 marked the real beginning of the new Tesco. Several recent wins and R&D highlights position us to build sustainable and profitable growth. Some of the highlights include increased market share in the AT&T ecosystem, a leading position in the Verizon Miner Materials Program, renewals of several state contracts, the reversal of the declining trend in our two-way segment, logging substantial growth, Ventev's warehouse antennas and mounts, spec'd for use in several Fortune 100 facilities, expanded Ventev antenna business beyond Wi-Fi, with top-selling broadband antennas covering LTE, CBRS, and 5G bands, Ventev award of a patent for the outdoor Wi-Fi bollard, and beta testing of our first software-based service offering 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 us start with our VAR and integrator business. Our VAR and integrator business includes all wireless infrastructure business outside the carrier ecosystem. As we had noted previously, many of our customers have reduced their workforces due to challenges caused by delayed projects, limited access to venues, and government approval delays. While 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 walkthroughs, designs, and quotes. 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 renewals of purchasing contracts with over 20 states and community wireless projects to support mobility for first responders as well as edge connectivity for underprivileged youth our focus on the utility sector continues Key wins this quarter included a long-term multi-million dollar purchase contract with an investor-owned utility, Ventive integrated solutions to enable multiple grid modernization applications for one of the largest gas and electric utility holding companies in the U.S., a refresh of a large portion of test equipment for one of the country's largest electric power holding companies, and a new contract with one of the largest investor-owned utilities. It is also important to note that we saw significant double-digit year-over-year growth in fleet and mobility solutions. We added some key brands to our line card in support of the VAR and integrator customers, including Samsara, which offers IoT solutions focused on industrial applications and fleet, We also began offering Samsung private LTE products. These are turnkey solutions for industrial customers, electrical co-ops, rural service providers, and OEMs. Much of the Samsung product is expected to be used in large public venues and office spaces. Our complete CBRS solution includes a partnership with Federated Wireless to provide SAS and core network services. Turning to the public carrier market, our improved offer and strong focus on business development during this last fiscal year has resulted in maintaining market share with the top turf contractor, significantly improving market share with the next two, and breaking new ground with two emerging turf contractors. Additionally, we have maintained strong market share in the Verizon Miner Materials Program. We continue to lead in sales 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, our recognized logistics and supply chain management expertise, Two, Tesco's 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 5G. Throughout this quarter, Q4, and continuing into this current quarter, we have built a large backlog of business of that backlog approximately 60 percent is related to 5g bills in both 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 have had since the onset of the pandemic At the end of Q4, our backlog was over 46% higher than that at the end of Q3. And the backlog in the second half of fiscal year 21 was 40% higher than the first half. This unique situation is a result of three factors. First, our own improvements in sales and business development are creating new opportunities and new bookings for Tesco. Second, global supply chain disruptions which have been well documented and have impacted companies across the globe. Accumulated demand backlog from the pandemic, ocean container shortages and overburdened capacity at U.S. ports have all contributed to longer lead times and disruptions we are now seeing. Additionally, the ice storms in Texas in mid-February delayed shipments for some of our largest manufacturers. And finally, the increased intensity of new 5G bills is requiring new products and considerations. The global supply chain issues are keeping the industry from meeting this new demand in a timely manner. These supply chain disruptions are continuing into this quarter as well. Logistical challenges, container issues, and global shortages in chips are impacting the largest OEMs. Overall, lead times have more than doubled on some products. To mitigate the impact of extended lead times and product shortages, we have taken several steps. 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 IT transformation project consisting of modernizing our core systems and enhancing our website, tesco.com. Benefits of these improvements to customer service and order processing, enhancements to our purchasing effectiveness, we believe these will have a positive impact on long-term operating profitability. Given the scope of the transformation, we're moving forward thoughtfully. Vaccine availability and reduction in the number of COVID cases has given us the confidence to bring employees back to the office after Independence Day. This will allow us to begin live, hands-on training with employees, update business processes, and go live with our enhanced IT platform. We expect this to happen during the second half of our fiscal year. Regarding Tesco.com, we have implemented several improvements. These include features to enhance customer tracking of orders, a new proxy shop feature enabling Tesco sales reps to provide real-time 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 Tesco.com the number one destination for information in the wireless industry. We are already seeing results from these enhancements. In Q4, our cart and browser abandonment solutions resulted in over $1 million in 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.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 Jesse Hillman as Tesco's Chief Operating Officer. 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 Lifebox Holdings. Jesse will assist with our IT transformation to better support our customers and drive efficiencies throughout the 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 the VAR 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.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 and our sales team. At the same time, our profitability improvements are focused on driving increased web commerce, offering unique Tesco solutions, including the use of our margin-enhancing Ventus products, and driving cost efficiencies throughout the business. The second pillar of our strategy is to industrialize our ventive 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 skews to our robust product offering. The greater use of feedback from customers and vendor partners to guide roadmap decisions. And our new partner designation by Cisco in 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. We're building out an array of services that will generate high margin and recurring revenue. We're expanding our focus on broader utilization of our industry-leading design services. For example, we provided over 1,000 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 a 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 formal launch of this product later this fiscal year. With that, I will turn the call over to Eric for the financial review. Eric?