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spk00: 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.
spk03: 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.
spk01: 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?
spk02: Thank you, Sandy, and good morning, everyone. As a reminder, the income statement amounts that I will reference are all from continuing operations and exclude the activity from our former retail business. First quarter revenues grew 7% year over year to $112 million. We achieved these results despite industry-wide disruptions in the global supply chain. First quarter sales bookings grew 13%. As Sandeep mentioned, we ended the quarter with another record level of backlog, totaling $99 million at the end of Q1, and up 109% year-over-year, and up 32% over last quarter. Gross profit was $22.4 million for the first quarter of fiscal 2023, compared with $19.7 million for the same quarter of fiscal 2022. Gross margin was 19.9% of revenue for the first quarter of fiscal 2023, compared with 18.8% in the first quarter of last year. This was largely due to a favorable customer and product mix in our public carrier market and continued strong inventive revenues in our commercial market. We also produced higher revenue growth in the commercial segment, which has higher margins than the carrier segment. We remain focused on cost management. SG&A expenses as a percentage of revenues continued last year's trend of being lower than the comparable amount from last year, representing 20.2% this quarter as compared to 20.6% in last year's first quarter. We achieved this reduction despite a significant increase in freight expenses caused by the global supply chain disruptions. The first quarter fiscal 2023 net loss was $0.5 million, down significantly from the first quarter of fiscal 2022 loss of $2.2 million. Adjusted EBITDA was a positive $0.5 million in Q1. This compares with adjusted EBITDA loss of $1.1 million a year ago. Turning to the balance sheet. Product inventory increased by $3.8 million in the first 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 4.5 million in the first quarter. This is reflective of the back-loaded sales quarter that was even more pronounced due to the supply chain challenges. The balance on our line of credit increased by approximately 4.8 million this quarter. We ended the quarter with income tax receivables of $3.6 million. The timing of receipts of these payments is largely dependent on the IRS. During Q1, we did receive $3 million of the tax refunds outstanding at year end. Our Q1 results continued the year-over-year improvement we saw during FY22. I'm very pleased with how we are executing on our strategy. Despite macro-level headwinds impacting our business, we are encouraged by the strong sales and even more so the record bookings and record backlog and believe that we will continue to see improvements in our results. Accordingly, we are reaffirming our guidance for fiscal year 2023, which is as follows. Revenue of $450 million to $475 million, which would reflect growth of 8% to 14% from last year. 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 of between $4 and $7 million, which compares to $0.3 million in fiscal year 2022. With that, I will turn the call back over to Cindy.
spk01: Thank you, Eric. Before we open the call to questions, I want to reiterate some of the highlights from this quarter. Strong sales momentum, led to record bookings and a record backlog. Our expenses continued to decline as a percentage of revenue. We reported positive adjusted EBITDA of a half a million dollars compared to a year ago loss of 1.1 million. Ventus achieved strong sales and bookings. Tesco Observer continued to add features and devices to the platform And we have a growing pipeline of opportunities that we believe will begin to result in revenue over the next several quarters. And lastly, two years ago, in the last first quarter, before the sale of our retail business, our total bookings, including $24 million from retail, were $114 million. Now, this quarter, after the restructure of retail, our bookings topped $137 million. This growth in sales along with the significantly lower cost basis following the retail divestiture is a key sign that the strategy we laid out back in fiscal year 2021 is yielding results. We will now open the call to questions.
spk00: At this time, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. Again, that is star one to ask a question. We will pause for just a moment to compile the Q&A roster. Once again, for any questions, simply press star one. Please ensure that you are picking up your handset before registering to ask your question. We will take our first question from the line of Jesse Wilson with William Blair. Please go ahead.
spk04: Hi, guys. Congrats on the quarter. You mentioned revenue from Tesco Observer is expected to ramp later this year. Where do you think that can sit in terms of revenue over a multi-year timeline?
spk01: Hey, good morning, Jesse. Thank you. And thanks for your question. We haven't given a multi-year guidance yet. So, you know, we will wait to answer that question. For this year, though, Jesse, we expect, as we said on this call and as said earlier, we do expect revenue to ramp, and that revenue is included in the guidance that we have provided for the year.
spk00: Once again, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Again, that is star one. We will take a follow-up question from the line of Jesse Wilson with William Blair.
spk04: Hey, just a follow-up question from me. So, Can you talk about how you performed in the quarter versus your internal expectations and how that informs your decision to reiterate guidance this quarter?
spk01: Eric, do you want to start, and I'll follow up?
spk02: Yeah. Thanks, Jesse. So, obviously, since we're keeping guidance the same, you know, I think it was a fairly indicative quarter of where we would be expecting the Bookings, obviously, were very strong this quarter. So we expect that to funnel the second half of the year. And so, you know, with backlog being as high as it is and with bookings where it is, I think we're very confident in the guidance that we provided. And, you know, obviously, leaving that where it is is indicative of that.
spk01: I mean, thanks, Harry. Jesse, thanks again for the question. So it's really our bookings momentum, Jesse. I mean, that has us very encouraged. We have almost a quarter's worth of backlog now that we are pretty confident in. And some of our business fundamentals that we have outlined on this call and focus on in terms of inventive industrialization, improving margins on that, those are all going per plan. So we're pretty confident and therefore have reiterated our guidance.
spk04: Understood. Thank you for taking my question.
spk01: Thank you, Jesse. Thanks, Jess.
spk00: Once again, to ask a question, simply press star 1 on your telephone keypad. We have no further questions at this time. I'll hand the conference back over to Sandeep Mukherjee for any concluding remarks.
spk01: Thank you, Operator. And thanks again to everyone for joining us today. We appreciate your support of Tesco. And also thank you to our team members for all their hard work and dedication. Your efforts are yielding positive results. We look forward to speaking with you again next quarter. This concludes our earnings call. Thank you, everyone, and have a nice day.
spk00: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
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