TESSCO Technologies Incorporated

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2022 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 a session, you will need to press star one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star zero. I will now let the HANA conference over to your speaker today, David Kalusian. Thank you. Please go ahead.

Good morning, everyone, and thank you for joining Tesco's Q2 Fiscal Year 2022 conference call. Joining me today are Sandeep Mukherjee, Tesco's President and Chief Executive Officer, and Eric Sputonik, 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 several 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 would 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. Our second quarter performance provides further compelling evidence that the work we have done in implementing our strategic initiatives are yielding positive results while setting us up for even greater long-term success. Our revenues grew 3% sequentially and 22% year over year, with gains in both our markets. These results include another record performance for our carrier market as we continue to grow share. We are seeing a continuing uptick in demand, the market is growing, and customers are bullish. Total sales bookings were up 38% year over year, reflecting robust demand for our products and services. At the same time, we continued to make progress with our vendors business, where bookings grew 17% year over year, the highest we have ever achieved. And we saw increasing utilization and growth in revenue on our website, tesco.com, both sequentially and year over year. While we are excited about the strong demand environment, we are also cautious about the global supply chain disruptions, challenges with freight, and predictability of product availability. These do not show signs of easing in the near term. For Tesco, this means longer lead times, increasing freight costs, and delays in converting bookings to revenue. Together with our improved bookings, this has created a backlog larger than anything we have seen. Despite these challenges, we've been able to deliver strong improvements in our bottom line results. Adjusted EBITDA improved by 0.9 million sequentially and 2.1 million year over year. The operating efficiencies we have architected allow us to drive more of our growing revenue and margin dollars to the bottom line and have us well positioned to achieve our full year operating plan. I will now walk you through the results and highlights of the past quarter in the following format. First, our two markets, carrier and commercial. Second, the three elements of our business, distribution, vendors, and software. And third, our performance on Tesco.com. Starting with our carrier business, as I mentioned, the second fiscal quarter marked another record for revenue. Carrier market revenue was up 44% year-over-year and 2% over the first quarter, which was our previous record quarter. Carrier market bookings were up 80% year-over-year. 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 initiatives. Within the Tier 1 carrier ecosystems, revenues this quarter grew 38% year-over-year. We achieved growth with existing customers and added new customers. We expect continued robust demand driven by C-band bills and alternative bill programs that are being launched. The strongest performance this quarter came from our tower business, with triple-digit year-over-year growth. We anticipate that our business will remain strong in Q3. Highlights include DAS power systems designs and strong DAS sales, as many sites reopened following the COVID shutdowns. We expect to expand our market share with these customers through new security and surveillance projects, as well as additional sales of steel for their tile construction. Regarding new business, we are seeing sales to the new customers we mentioned last quarter. And we will ship our first orders to one of the largest wireless carriers in the current third fiscal quarter. We expect that demand from this customer will continue to grow. We have also shipped product to the largest broadband company in the U.S. and expect demand from that customer to continue to grow over the coming quarters as well. 5G continues to be a key market driver in this space and currently represents about 25% of our carrier spend. Our business development efforts have been highly effective, enhancing our market share with existing customers and expanding the number of customers that we service. While demand from our carrier segment continues to grow, several key products remain highly constrained due to the supply chain disruptions. We are working closely with our customers to forecast demand and with our vendor partners to mitigate these challenges. Turning now to the commercial market, which includes all wireless infrastructure business outside the carrier ecosystem. The commercial market had its best revenue quarter in seven quarters. posting 5% sequential and 10% year-over-year growth. Sales bookings were up 16% year-over-year. The largest growth sector this quarter was again our VAR customers, up 10% sequentially and 29% year-over-year. This growth was driven by our sales focus on these VARs, continued lessening of the pandemic impact we described in prior quarters, and availability of inventory targeted and purchased for this sector. We are demand planning with our top VARs to better forecast product to meet their demand, especially given the current supply chain disruptions. Our progress in this area has shortened lead times and reduced our VAR customers' stock on hand. Many of our VAR customers have utilized our design services, and we are working with these customers to assist them with the necessary product purchases. Bookings have been strong, which should result in continued growth in the second half of the year. While revenues were down 8% year over year, our utility business is regaining momentum, and sales grew 19% sequentially. Bookings were also strong, growing 29% sequentially. We're now engaged with several customers in advanced planning for upcoming technology projects. We're seeing a demand for private LTE networks as a foundational wireless platform that utilities can use to consolidate technologies under one network. These initiatives require longer planning cycles, and we expect them to reach maturity in calendar 2022. Our solutions expertise and our line card put us in a very good position, especially with the recent supply relationships that we have announced. Replicating the model we established with utilities, we have created a new government team to build upon the success we've had with federal, state, and local governments, as well as government buyers. Turning now to the three key elements of our business, namely distribution, vendors, and software. Starting with our distribution business, we continue to win market share and develop new customer and manufacturer relationships. Our line card is now one of the most robust critical communications portfolios in the market and includes, among other solutions, products for public safety DAS, cellular DAS, broadband, small cell, macro site, and CDRS slash private LTE. Our turnkey offerings, value-added services, including solution development and design, site kitting, and supply chain logistics, provide cost efficiencies for our customers, and reduce complexities for their deployment challenges. We're making progress with our IT infrastructure modernization projects, which we expect to largely complete by the end of this fiscal year. Once implemented, we will realize several enhancements. Some of these will include reduced freight in costs, improved delivery consolidation, streamlined inventory transfers, ability to proactively identify potential order delays, and streamline closing of financial statements. These enhancements will provide us with further cost efficiencies and make Tesco easier to do business with. The industry-wide supply chain challenges have meant extended lead times for many products and a growing order backlog. We have been addressing these issues on two key fronts. First, we have increased our forward-looking demand planning with customers, which has resulted in many of our customers providing us with purchase orders earlier than they had in the past. Second, we have worked very closely with our vendor partners to address supply availability and price increases. And as a result, we create opportunities for ourselves to make educated purchases of constrained inventory. to help our customers and protect Tesco's margins. Despite the headwinds, we will remain focused on our business development efforts to drive growth in our markets while continuing to drive efficiencies throughout our company. Also, we will work closely with our customers and our suppliers to mitigate supply disruptions and inflationary pressures with a goal of improved profitability. Regarding our ventures business, Bookings grew 17% year-over-year, totaling the highest we have ever achieved. Sales were flat sequentially and year-over-year due to supply chain issues. Included in our bookings and revenues this quarter are custom enclosures and power solutions purchased by VARS to provide fiber aggregation solutions for 5G. While the end customers are the larger nationwide carriers, this business unlocks a new revenue stream for our commercial market driven by 5G deployments. We believe this business will grow and help both our carrier and commercial results in future quarters. Other innovations from Ventus this quarter include a variety of enclosures, cabinets, and power solutions, all developed using the productization focus we embarked on 18 months ago when we launched our three pillar strategy. And as the bookings demonstrate, These innovations have been well received by customers from many verticals, including clean energy, federal agencies, warehouse operators, and universities, to name a few. Our focus and strategy is to ensure attachment of ventive products with LMR slash two-way, public safety DAS, and small cell solutions, which improve both margins and customer satisfaction. Regarding our software business, as we mentioned last quarter, our device monitoring and alerting service met generally available or GA milestone and is now in production. We now have a number of customers using this platform, and we are in commercial discussions to help them scale and include this capability as part of their own go-to-market strategies. Additionally, as a sign of industry acknowledgement, we have OEMs. using our device monitoring capabilities to showcase their own products as well. While we expect initial revenues this fiscal year, as we have said before, these revenues will ramp in fiscal 2023. Lastly, in terms of our sales channels, Tesco sells both directly and online through Tesco.com. Our continued focus on Tesco.com resulted in an increase in the number of buying customers, the number of repeat customers, and the size of orders we have seen this past quarter. Sales on Tesco.com generally come at higher margins and are more cost efficient to process. In Q2, revenue increased 12% sequentially and 18% year-over-year, totaling $11 million. Engagements measured by product page views increased by 280% year over year. We're 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 this past quarter.