TESSCO Technologies Incorporated

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2023 Tesco Technologies, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to David Colusium from Sharon Merrill. Please go ahead, sir.

Good morning, everyone, and thank you for joining Tesco's Q1 Fiscal Year 2023 conference call. Joining me today are Sandeep Mukherjee, Tesco's President and Chief Executive Officer, and Eric Spitulnik, 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, please go ahead.

Thank you, David. Good morning, everyone, and thank you for joining us today. Strong sales momentum continued throughout the first quarter of our fiscal year 2023, confirming yet again that our strategy is effective and yielding positive results. We had another solid and productive quarter, despite global headwinds, resulting in strong shipments along with record bookings and backlog. Our shipments totaled $112 million, up 7% year-over-year. We had record bookings of $137 million, and our backlog increased 32% from last quarter to $99 million, which is yet another record. At the same time, our focus on expense reduction resulted in SG&A continuing to decline as a percentage of revenue. Furthermore, we reported positive adjusted EBITDA of a half a million dollars compared to a year ago loss of $1.1 million. We continue to see strong demand for our products and services and growing momentum with our turnaround strategy. Eric will talk more about our business outlook later in the call, but we are continuing to project 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 in the following format. First, our two market segments, carrier and commercial. Second, the three key elements of our business, namely distribution, inventive, and software. And third, the performance of Tesco.com. Q1 marked another solid quarter for our carrier business. Carrier revenue was up 2% year-over-year and 6% sequentially. Due to a more favorable customer and product mix, gross profit was up 18% year-over-year and 36% sequentially. Our bookings remained strong with growth of 11% year-over-year and 45% sequentially. Our backlog at the end of Q1 was over $45 million, up 78% year-over-year and 39% sequentially. Our strongest growth within the carrier segment this quarter came from our tower business, which grew significantly, up 64% year over year and 56% sequentially. We earned an additional business line with our largest tower customer, which started in Q4 and significantly grew this quarter. We expect steady growth for this new business line throughout fiscal 2023. Additionally, we have begun to place some of our vented products with our tower customers and expect vented product sales to continue to grow this fiscal year. Regarding our AT&T turf contractors, we continue to improve our market share and have seen increased spend with two of the largest turf contractors. The major tier one carrier customer that we signed last year has begun to show significant growth quarter over quarter. We've also made considerable progress with our general contractor customers, developing even stronger relationships and supporting them across multiple Tier 1 carrier projects. Our continued success in this market stems from several factors. First, our logistics and supply chain expertise. Second, our proprietary engineering and production capabilities. Third, our strong relationships with customers and manufacturing partners. And finally, the ongoing and successful execution of our business development efforts. I will now turn to the commercial market, which includes all wireless infrastructure business outside the carrier ecosystem. Q1 was a very strong quarter for commercial revenue, with an 11% increase year over year and a 14% increase sequentially. Gross profit increased 12% year over year and 13% sequentially. Bookings were also strong, ending Q1 at $76 million, up 16% year over year and 18% sequentially. Backlog hit yet another record at quarter end, growing to $54 million, a 144% increase year over year and 26% sequentially. Our scale, technical expertise, value-added services, program management support, and personalized account coverage are the key reasons why our customers rely on Tesco. I mentioned last quarter that hospitals were a large market segment that we had access to our DAS integrators. That continues to be the case. Through the AT&T Enhanced In-Building Program, or EIB, we were able to book over $6 million this past quarter with one of the EIB integrators, and shipped over $4 million. We still have a sizable backlog for that customer, totaling over $10 million, which we expect to be able to ship over the coming months. We are also engaged with other EIV integrators. Our utility market grew 21% year-over-year and 5% sequentially. These strong results confirm our strategy of helping electric utilities modernize and helping with their overall grid automation projects. Growth initiatives in this market include a business development campaign around automated metering infrastructure. Our VAR market grew significantly, up 10% year-over-year and 14% sequentially. Our transportation segment also grew, up 37% year-over-year and 87% sequentially. This included projects to support microwave equipment for Class 1 railroad customers. We are very encouraged by the strong momentum we are carrying into the second quarter. Turning now to the three key elements of our business, specifically distribution, inventive, and software. Starting with our distribution business, we are focused on increasing the market share growth we captured last fiscal year and reviewing new strategic supply relationships to help diversify Tesco's overall business and buffer against supply chain constraints affecting our largest suppliers. To address the persistent global supply chain challenges and mitigate long lead times, we are utilizing our demand planning and supply chain teams to work directly with many of our customers. This close collaboration has encouraged many of our customers to provide blanket or advanced purchase orders to help overcome inconsistent lead times and to ensure the timely completion of their projects. This helps us in forecasting and in ordering the materials they need. We leverage our relationships with our manufacturer partners to pull in product delivery dates. As I've mentioned in prior quarters, we consistently stress test the quality of our backlog, and that remains very strong. We continue to focus on supplier and customer engagement in support of project planning and forecasting for critical communications solutions. related to public safety DAS, cellular DAS, broadband, small cell, macro site, and CBRS slash LTE applications, while also supporting runway business needs related to land mobile radio and testing solutions. Our teams have produced creative and innovative ways to positively impact profit margins, despite material delays and pricing and freight increases from our supplier partners. Of course, these are global and industry-wide challenges, but we remain focused on driving a positive customer experience and setting Tesco apart by making it easier for both our customers and suppliers to do business with us. Turning now to Ventus, our strategy of industrializing our Ventus operations continues to yield results. Ventus had its second highest quarter in our history, growing 19% year-over-year, well down 18% sequentially from its record performance in Q4. From a bookings perspective, Ventive had a 20% increase year-over-year and a 30% increase sequentially. Ventive increased market share with a wide range of existing customers, including a Fortune 500 utility company, the world's largest technology company based on revenues, the world's most valuable automaker, and the world's largest social media platform. Our international sales efforts resulted in overseas Ventus sales more than doubling year over year. This past quarter, Ventus executed an agreement with HPE Aruba to provide a powered protective enclosure system for the Aruba CX4100i industrial switch platform. This will allow single-skew ordering of Aruba switching combined with Ventive-powered solutions for a complete implementation for harsh environments. To recap, our strategy for Ventive has been to standardize our product line while recognizing that configurability is a fundamental and differentiating requirement. This has been demonstrated by the use of product lines such as the Cisco Design-in powered enclosures and our new universal antenna solutions. These standardized configurations have resulted in fewer SKUs while allowing for greater flexibility for the customer. Through these efforts, we have been able to eliminate 10% of our SKUs without any customer or revenue impact. Regarding our software business, we have branded our software as a service, or SAS, monitoring solution as Tesco Observer. While revenue for Tesco Observer has not been significant to this point, we made good progress in Q1. We have made several enhancements to the platform, including integrations with industry-leading picketing solutions like HubSpot, expanding our notification capabilities using solutions like Twilio, and expanding our capabilities with onboarding, SNMP, and connectivity options, example Modbus support. We have significantly increased the number of devices we support on our platform to over 550 distinct model numbers. And I've also increased the number of brands supported. Our sales team has been actively working on several opportunities, and we expect revenue from Tesco Observer to begin ramping later this fiscal year. Lastly, in terms of our sales channels, as you know, we sell both direct and online through Tesco.com. We continue to attract new customers to Tesco.com, which resulted in revenue of over $9.8 million this quarter. New features this quarter included the addition of a resolution bot on Tesco.com that directs customers to answers for commonly asked questions. We also have implemented content syndication on paid platforms. With that, I will now turn over the call to Eric for the financial review. Eric?