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spk02: Welcome to the TSS first quarter 2022 earnings call. My name is Darrell and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touchstone phone. As a reminder, this conference call is being recorded. I will now turn the call over to John Penver. John, you may begin.
spk00: Thank you, Darrell. Good afternoon, everyone. My apologies for the late start. We had a few technical issues in getting the call moving. But thank you for joining us on this call today to discuss our first quarter 2022 financial results. Are you getting music, John? Yep. Okay, there we go. Daryl, are we ready? Did we lose Daryl? Should I proceed?
spk01: I'm going to send a note to... I don't know. I don't know if everybody's on or not.
spk02: You do have 11 participants in the main conference.
spk00: Are we started now or not? We heard your introduction and then we heard music after I started speaking.
spk02: Well, we're not on music hold now, so I think you can proceed.
spk00: Okay, my apologies. I had started speaking and then it cut off to music, so we weren't sure if we were recording or not. But if we're ready to proceed, I will proceed.
spk02: Please proceed.
spk00: All right. Thank you. My apologies, everybody. We've been experiencing some challenges with a change in system with our earnings call. So my apologies for the delay in listening to us. But thank you for joining us on the call today to discuss our first quarter 2022 financial results. I'm John Penver, the CFO for TSS, and joining me on the call today is Anthony Angelini, the President and Chief Executive of TSS. As I begin the call, I'd like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on this conference call. This call contains time-sensitive information as well as forward-looking statements, which are only accurate as of today, May 16, 2022. TSS expressly disclaims any obligation to update, amend, supplement, or otherwise review any information or circumstances that may arise after the date indicated, except as otherwise required by applicable law. For a list of the risk and uncertainties which may affect future performance, please refer to the company's periodic filings with the Securities and Exchange Commission. In addition, we will be referring to non-GAAP measures, and a reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with GAAP is included in today's press release. So I'll begin the call with a review of our first quarter of 2022 results, and then send the call over to Anthony for some comments on the business and how we see 2022 shaping up. Earlier this afternoon, we released a press release announcing our financial results for the first quarter of 2022, and a copy of that release will be made available on our website at www.tssiusa.com. Overall, our revenues were very similar to the first quarter of 2021. However, due to a change in our sales mix, we were able to improve our gross profits by $361,000 or by 28%, which flowed through to our bottom line and allowed us to record a small adjusted EBITDA profit in the first quarter of 2022 compared to the $334,000 EBITDA loss we had in the first quarter of 2021. The change in sales mix occurred in our procurement and reseller services and in our facilities business. Our level of reseller revenues has historically fluctuated on a quarterly basis. And in fact, in the current year, we had more transactions where we simply acted as an agent in the transaction, meaning that we were not in custodial control of the underlying inventory. And for these agent-type transactions, we record our revenue as the net amount of the commissions or earnings. So although our reseller revenue was down by 22% or $478,000 compared to the first quarter of 21, we actually increased our gross profit from this revenue stream by $130,000. compared to the first quarter of 2021. Our facilities business grew by 32%, or $499,000 compared to the first quarter of 2021, as deployments of modular data centers increased, in part due to improvement in the supply of equipment needed for deployments. This improvement in supply chain saw deployment revenues grow by 216% compared to the first quarter of 2021, which was offset by a decrease in revenue from refurbishment and refreshment of older modular data centre units, as the new deployments are starting to replace older units in the field. As long as these supply chain issues continue to mitigate, we would anticipate strong year-over-year growth in our facilities business for the remainder of fiscal 2022. Overall, when looking at the business, we've replaced reseller revenues with revenues from our facilities business, such that our total revenue increased by $22,000 compared to the first quarter of 2021. Because we earned higher margins on our facilities revenue than the margins from our procurement and reseller activities, we were able to increase our gross profits by 28% from 2021 on flat revenue. Revenues in our systems integration business were down marginally by 4% compared to the first quarter of 2021. Towards the end of this first quarter, we did see some improvement in supply chain constraints that we've been dealing with since mid 2021. And we were able to start fulfilling some of the record backlog that we've built up. We anticipate that our second quarter will show improved results in this business as the supply chain constraints continue to improve. We do expect that supply chain interruptions will continue throughout the remainder of 2022 and continue to impact our integration business based on comments from our vendors and customers. Now our first calendar quarter of each year does have higher operating expenses compared to our other quarters as we complete our annual audit and deal with SEC compliance costs. And this year the costs were down marginally compared to the first quarter of 2021. So let me give a few more details on our first quarter 2022 results. Our revenue for the first quarter of 2022 was $5.2 million. This compared to $5.2 million in the first quarter of 2021 and 14.6 million in the fourth quarter of 2021. Changes in the level of reseller revenues are primarily responsible for fluctuations in our quarterly revenues. So our reseller revenues, for example, decreased by 10 million from the fourth quarter of 2021, and were half a million lower compared to the first quarter of 2021. And I've said before, the timing environment of these reseller and procurement transactions is often beyond our control, and this continues to drive large fluctuations in our quarterly revenues, Now, medium to longer term goals will be to drive more consistency in this revenue stream. And as I said, during the first quarter of 2022, most of our procurement and reseller transactions were what we call the agent transactions. And here we have no control of the goods or services before they're transferred to the customer. We're simply acting as an agent in the transaction and recognising the revenue as the fee or commission that we expect to be entitled to after paying the other party for the goods or services that are provided to our customer. Our facilities business generated 2.1 million of revenue during the first quarter of 2021. This was half a million or 32% higher than such revenue in the first quarter of 2021. This was also 0.7 million or 47% higher than the 1.4 million that we had in the fourth quarter of 2021. This improvement was driven by a large increase in deployment revenues from the deployment of new modular data centers. Now deployment revenue increased by 836,000 or by 216% compared to the first quarter of 2021. This business has been impacted since mid 2020 by the COVID pandemic as travel and site restrictions and more recently supply chain challenges have impacted the delivery of the needed equipment and our ability to deliver services at customer locations. As the supply conditions have improved We've been able to deliver on our backlog of deployment projects, and we anticipate high deployment revenues over the next several quarters as a result. And as our efforts focused on UMDC deployments by our customers, revenues from refurbishment, upgrade and refresh activities has decreased compared to the prior year. Our integration revenues, as I said, were down 4% or $55,000 in the first quarter of 2022 compared to the first quarter of 2021. This operation has been more impacted by supply chain issues in part attributable to the impacts of the COVID pandemic and we did towards the end of the first quarter seen improvement in component supply that has allowed us to start fulfilling some of the backlog. We anticipate our level of integration services will increase in the next quarter from the Q1 levels and hopefully this will continue for the remainder of 2022. Our gross profit margin of 32% during the first quarter was up from 25% in the first quarter of 2021. The improvement in margin as a percentage of revenue was primarily attributable to the decrease in the level of procurement and reseller revenues, where we earned lower margins on product purchase and resell services, unless we're acting as an agent in the transaction, than the margins we earned from our core integration and maintenance facilities. Lower procurement, And reseller revenues decreased our revenue, but because of the high level of MDC deployments, our overall gross profit in dollar terms improved by $361,000, or by 28% to $1.7 million in the first quarter of 2022, compared to $1.3 million of gross profit we had in the first quarter of 2021. The margins on our core facilities and integration businesses were 40% in each of the first quarters of 2022 and 2021. Our selling general and administrative expenses during the first quarter of 2022 were $1.7 million. They were down 46% or 3% compared to the $1.8 million we had in the first quarter of 2021. Traditionally, our first quarter operating expenses are higher than subsequent quarters due to audit and compliance costs we incur in the first calendar quarter, and we'd anticipate a decrease in operating expenses in the second quarter as a result. After all the above, we record an operating loss of $173,000 in the first quarter of 2022. This compared to an operating loss of $607,000 in the first quarter of 2021 and an operating loss of $100,000 in the fourth quarter of 2021. After interest and tax costs, we had a net loss of $308,000 or two cents a share in the first quarter of 2022 compared to a net loss of $699,000 or four cents a share in the first quarter of 2021. Our adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, stock-based compensation, was a profit of $43,000 in the first quarter of 2021. And this compared to an adjusted EBITDA loss of $334,000 in the first quarter of 2021. Turning now to the balance sheet, our balance sheet position remained healthy. The timing of events around our reseller transactions definitely has a material impact on our balance sheet. The changes in cash balances and the changes in our deferred costs, inventories and accounts payable since the prior year are primarily due to the timing of cash receipts and payments related to reseller transactions. Due to the timing of upcoming reseller projects at the end of March 2022, we were able to be paid from customers but had yet to pay vendors and suppliers for these projects, causing our accounts payable and accrued expenses to increase by $4 million during the quarter. A deferred cost on reseller projects consumed 1.3 million during the quarter, an increase in inventory consumed 0.6 million, offset by an increase in deferred revenues of 0.4 million. We continue to feel good about the strength of the balance sheet and are looking at ways to utilise it to assist us in growing future growth in cash flows. We believe we'll have adequate trade credit available to us to continue financing the reseller activities as we grow this business during 2022 and beyond. And then last week, we added a new $1.5 million revolving line of credit facility with our new bank to provide more financial flexibility for us as the business grows during 2022. With that, I will now hand the call over to Anthony for some comments on the first quarter results and how we see the business evolving during 2022. Thanks, Anthony.
spk01: All right. Thank you, John. And echoing John's reply, we apologize for the delay. There was some some issues with our provider that we had to work through. So I'll start my comments with, despite some macro environment challenges, in particular supply chain challenges, we were still able to achieve a small amount of positive adjusted EBITDA Q1. As John mentioned, excuse me, our first quarter has additional operating costs due to our audit fees and other professional fees. This has been consistent over the years. It is best to compare the first quarter year over year, and we saw improved gross margin and improved bottom line results compared to 2021. As we see supply chain issues beginning to ease and delivery of materials becoming more predictable, we expect to see continued improvement quarter over quarter throughout the year. We have already seen good improvement in the second quarter. Our current expectations are to finish the year with revenue in the mid to high $20 million range, margins in the mid to high 20% range, and adjusted EBITDA profit north of $2 million for the year with positive net income for the year as well. We are carefully navigating the current market conditions and continue to hold a large overall backlog of projects. As we look at growth opportunities, we continue to primarily focus on delivering our core business and its corresponding backlog in a very efficient manner. We do continue to look for both organic and potential M&A opportunities to diversify our customer base and expand our overall services. In the near term, we will continue to monitor the macro dynamics while focusing on maximizing profitability and cash flow. We believe as we move through the year, we will deliver increasing cash flow from operations that will further strengthen our balance sheet. We believe that our service capabilities and balance sheet are positioned both to weather any bumps in the road and give us opportunity for expansion. Demand for IT and data center infrastructure will continue to grow. The capabilities provided by the infrastructure we deliver through our services are important investments for many companies to help offset inflation challenges by increasing efficiency and operations. In general, we believe we are taking the right steps to maximize our resources and deliver positive cash flow in 2022. With that, we'll be happy to take your questions.
spk02: And if anyone has a question, you can press 0 then 1 on your touchtone phone. Once again, if you have a question, it's 01 on your touchtone phone. And I'm standing by for questions. Once again, that's 01 on your touchtone phone. Once again, it's 01 on your touchstone phone if you have a question. And we don't have any questions at this time.
spk01: Okay. Thank you, Darrell. We, again, for the third time, we apologize for the delay in the call and if that impacted anyone. But we feel good about the year. We feel good about how we're navigating the marketplace and We look forward to talking to you late summer and showing you the results we're starting to achieve. Thank you.
spk02: And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
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