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Edited Transcript of TESS earnings conference call or presentation 31-Oct-19 12:30pm GMT

Q2 2020 TESSCO Technologies Inc Earnings Call

HUNT VALLEY Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of TESSCO Technologies Inc earnings conference call or presentation Thursday, October 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aric M. Spitulnik

TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary

* Sandip Mukerjee

TESSCO Technologies Incorporated - President, CEO & Director

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Conference Call Participants

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* Theodore Riley Starck-King

William Blair & Company L.L.C., Research Division - Associate

* William J. Dezellem

Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer

* Jamie Bernard

Sharon Merrill Associates, Inc. - Senior Associate of IR

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the TESSCO Second Quarter Fiscal Year 2020 Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Jamie Bernard with Sharon Merrill Associates. Please go ahead, ma'am.

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Jamie Bernard, Sharon Merrill Associates, Inc. - Senior Associate of IR [2]

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Good morning, everyone, and thank you for joining TESSCO's Q2 2020 Conference Call. Joining me today are Sandip Mukerjee, TESSCO's President and Chief Executive Officer; and Aric 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 TESSCO's results may differ materially from those discussed today. Information concerning factors that may cause such a difference can be found in TESSCO'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 Sandip Mukerjee, TESSCO's President and CEO. Sandip?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [3]

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Thank you, Jamie, and hello, everyone. It is my pleasure to be here today as TESSCO's President and CEO. I'd like to take the opportunity to briefly introduce myself, discuss why I am excited to be part of the TESSCO team and review some of my early observations, very specifically highlighting the exciting opportunities that lie ahead for TESSCO.

Let me begin by introducing myself. I have spent over two decades in wireless, Telecom and the software industries with AT&T Bell Labs, Lucent, Alcatel-Lucent and, most recently, with Nokia. During that time, I have experienced firsthand what technology refreshes mean in the wireless industry, specifically, how these enable growth and opportunity for the broader ecosystem and, more importantly, how they impact the way people live and conduct business. The current transitions we are going through, which some have labeled the fourth industrial revolution, will bring about unprecedented changes and opportunities.

When I accepted this CEO role, I knew that TESSCO had a well-established heritage and a pretty impressive reputation in the industry. I also knew that much work was needed to reverse the Company's current trends. Since joining TESSCO in late August, I've been here for about 70 days now, I've spent a lot of time getting to know our people, our customers, our operations, our processes, our financials and our supply partners. What I have discovered reinforces and accentuates the positive impressions I first had when I joined TESSCO.

Very specifically, number one, we have a very talented team of individuals who come to work every day with passion and purpose. We have excellent long-standing relationships with our customers and our supplier partners. We have a strong core solutions competency that come about as a result of our team's in-depth understanding of both technology and the market. And then finally, we sit in a position in the overall industry's taxonomy that anticipates the ramp of new technologies and very candidly makes it happen. These factors align very well with my own brand that I bring to the table, my brand around customer intimacy, innovation and a passion to be very easy to do business with.

Now while these factors provide a solid foundation for our company, as I mentioned earlier, we have a great deal of work to do to realize our full potential. In order to improve performance, we have already taken immediate actions to make some very important changes in our structure, and we are undergoing a very thorough review of every aspect of how we operate and innovate. As an example, we have split our product and sales functions into separate organizations in order for each organization to focus on their expertise and devote management attention. In the same breath, we have combined our product management and supply chain organizations into one seamless organization to facilitate a better understanding of our inventory needs and drive efficiencies.

Let me spend a few moments on Ventev, our own innovation and manufacturing engine. Ventev's ability to design unique products, example, custom enclosures, has enabled us to win business with some large stadiums and Fortune 100 enterprises. One example of this is a recent win with a large baseball stadium in Texas, which will begin shipping later this quarter.

Another area we focused on improving is our whole overall solutioning proficiency, which is a true differentiator for TESSCO. This is when we anticipate our customers' future needs and develop integrated solutions involving one or more suppliers, our own Ventev capabilities, along with our other technical and logistics capabilities, to come up with a full, what we call, an end-to-end solution.

Let me give you an example of this. We recently partnered with CommScope to bring to market a bi-directional amplifier that solves critical coverage needs for reliable, cost-effective public safety wireless systems. TESSCO has had a long commitment and engagement with the public safety industry, and this product will ensure that emergency responders have reliable and continuous communications. It is because of this customer intimacy and our ability to work across the value chain that TESSCO has secured the entire first year of production capacity for this very innovative product.

While our ability to craft solutions is a true competitive advantage, we need to become much easier to do business with. To that end, we have already begun to make important changes, including improvements in our order processing, supply chain management and inventory optimization. We have also implemented a strong discipline around building and managing our sales pipeline.

As a result of these actions, we expect to better position TESSCO to capitalize on the technology growth trends that I mentioned earlier. And because the upcoming market opportunities are so significant and align so well with our core competencies, our core strengths, we are accelerating our technology and process improvement investments to enhance, a, our competitive advantage; b, drive sustainable, profitable growth; and c, create shareholder value for the long term. I plan to share much more on these points with you over the coming months and quarters.

Now let's turn to an overview of our second quarter performance. Our overall second quarter results improved sequentially from the first quarter, although they were weaker than expected on both the top and bottom lines. Revenue was down 10.6% year-over-year primarily as a result of our Retail business, which was down 24% year-over-year. This was due to our previously disclosed retail customer transition that occurred in the fourth quarter of our fiscal 2019. Our carrier business was essentially flat year-over-year, but it improved sequentially as we captured new wins in the carrier ecosystem with both Tier 1 carriers and Turf contractors. The VAR business was down 6% year-over-year.

Let's discuss the drivers behind the performance of each one of our businesses starting with our Retail business. The same confluence of factors that negatively impacted our first quarter continued to impact us in the second quarter for this business.

First, the Retail segment is experiencing significant consolidation at multiple levels throughout the supply chain. Second, our Retail business is adapting to changing dynamics, such as the slowdown of the device refreshes which has driven the market for the last several years. These dynamics are expected to continue until a broader set of accessories hits the mass market. We expect this to change with the availability of 5G devices, and this is expected sometime later in calendar 2020.

Tariffs have also had a negative effect on this business during the last several quarters. This was a contributing factor in our results this quarter as well. However, with the supply chain actions we have started earlier, we expect tariffs to have a minimal effect on our business going forward.

Beyond this, we are aggressively addressing some critical areas that will improve our performance. Examples, focusing on a better customer experience, implementing strong sales disciplines that drive building and managing our pipeline, forecasting and improving inventory management. We're also devoting resources and investing in our e-commerce website. The performance of our website has hindered sales not only for our Retail channel but also for our VAR and Integrator segment. We now have a team dedicated to fixing issues and implementing enhancements. We are already seeing some positive results of these efforts, and it is critical that we improve the aspects of this part of our business, which has been holding us back for some time now.

In addition to these structural changes, we are focusing on developing business in new retail channels, including mass consumer electronics, wholesale, airport, enterprise, insurance and repair. We are actively supplying product to customers in the U.K. through two newly established distribution partners in Europe. And as we mentioned last quarter, we signed a contract with one of the largest carriers in the U.K. to supply Ventev mobility products and have also signed contracts with another large carrier as well as a mass retailer.

Additionally, we are dedicated to providing a best-in-class accessory line card. To that end, we recently announced a new partnership with JBL, a premier audio products brand. This partnership helps us continue building a robust and competitive audio offering while providing customers with a single source for all their audio and mobile device accessory needs.

And finally, our Retail business historically has been able to snap back from dynamics like the ones we are now seeing which have happened before. We expect the same to be the case going forward.

Turning to the VAR and Integrator business. We had previously discussed the realignment of our sales and go-to-market strategies in prior quarters. We have not yet seen the results of these changes in our sales momentum.

TESSCO has a strong brand recognition and presence that position us very well to gain meaningful market share in this segment. I've had a chance to review and understand the go-to-market strategy being implemented. I believe our implementation of the strategy needs some refinement to gain better traction and to drive growth. These include many of the things which I mentioned earlier, including stronger sales disciplines, improvements on our e-commerce website and a lean forward approach to understanding our customers changing needs and associated solutioning to solve those needs. We're implementing these refinements, and I firmly believe that these will collectively have a positive effect on our sales. We will pay particular attention to growing our market share in this segment.

Regarding our Public Carrier ecosystem business, while revenue was essentially flat year-over-year, sales were up significantly sequentially quarter-over-quarter, and we expect continued sequential growth. Let me tell you why. We're capturing new wins with Tier 1 carriers and with our Turf contractors. In Q1, we mentioned that we had signed a master purchase agreement with a Tier 1 carrier and had been awarded components of a major distributed antenna system project for a government agency installation. The carrier has slowed down some of these builds this quarter but has been, overall, very pleased with our performance. Additionally, several of our turf contractors have won new markets, and we have been selected either as their primary supplier or exclusive provider for the sites that they have won. We're also winning business with Verizon contractors. And during this quarter, we were informed that we won important aspects of a tower business with one of the largest tower operators in the United States. I am very proud of what our team has achieved and believe these wins will have a dramatic effect on this part of our business going forward.

Overall, we are encouraged by the outlook of the carrier segment as the build delays we had seen over the last few quarters, they seem to be easing. We expect, like the rest of the industry, that the velocity of 5G deployments will increase in the second half of calendar 2020. Given the competitive environment among the U.S. carriers, we expect increasing demand. And broad recognition of TESSCO's industry expertise, together with our program management suite, our execution, this will drive increased demand for our products and solutions.

Our Ventev Infrastructure business, which supports both the carrier and VAR markets, is expecting sales improvements going forward. This is driven by customers waiting for WiFi refreshes, however, choosing to wait for the next-generation technology, namely WiFi 6. OEMs are just now releasing radios for WiFi 6 deployments. So we expect to see a lift both this quarter and throughout Q4 from this group of products.

Finally, as we mentioned in our press release, I have kicked off a strategic study of our business. Now this is expected to be completed by the end of our fiscal year, and the goal is to ensure that all of our company assets and resources are being best utilized to enhance long-term shareholder value. I expect to share the results of this work with you over the coming quarters.

Let me now hand over the call to Aric for a more detailed discussion of the financial results. I'll be back to provide some final thoughts. Aric?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [4]

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Thank you, Sandip, and good morning, everyone. As you know, while we did show significant improvement to our revenue and earnings over Q1, this was another difficult quarter for us. However, we feel good about the fundamentals of our business, and we are now focused on the exciting opportunities before us.

Now let me give you a financial overview of the second quarter. Revenues totaled $142 million, down 11% from the prior year. Sequentially, total revenues were up 8%.

Gross profit for the quarter was $26.3 million, down 16% from the prior year quarter due to lower sales volume and higher tariffs that increased freight-in costs. As a result, gross margins declined to 18.6% from 19.8% in the second quarter of fiscal 2019.

Our incremental tariff costs to date this year, which primarily are related to Ventev mobile accessory products, have been approximately $1.4 million. We have said all year that we expect the tariff issue to be largely mitigated by Q3, and we have been successful in that effort. We believe that over 80% of all Ventev power products we manufacture this quarter will come from nontariff countries. So, while we will continue to have some tariff costs going forward, the amount should be vastly lower than in the first half of the fiscal year.

SG&A expenses were down 13% from the prior year quarter in part due to lower variable expenses but also as a result of our cost reduction efforts. As a percentage of total revenue, SG&A expenses decreased 40 basis points to 18.2%.

Operating income was $0.6 million for the quarter compared with operating income of $1.9 million for the same period last year due to the lower sales volume.

Net income for the second quarter was essentially breakeven compared with net income of $1.2 million a year ago. Second quarter diluted earnings per share were also breakeven compared with diluted earnings per share of $0.14 a year ago.

In light of second quarter results and the difficulty in forecasting results for the fourth quarter, which is historically our most difficult quarter to forecast, we've rescinded our previously given financial guidance. We do, however, expect positive earnings through the third quarter.

Turning to the balance sheet. Our inventory balance decreased by approximately $17 million from the end of Q1 as expected. We've had a company-wide initiative to reduce inventory while not impacting our availability to customers. Most of the inventory reduction was related to carrier projects that had been deferred. While we are focused on opportunities to further lower inventory, we are in a much better position now than we were 90 days ago.

We borrowed an additional $15 million against our $75 million line of credit, down from a balance of $35 million. While the project-based business will naturally lead to fluctuations on the balance sheet, we remain focused on improvements in working capital and cash flow.

We have set our dividend of $0.20 per share with a record date of November 13 and a payment date of November 27.

While the results of this fiscal year have been below our expectations, our team is engaged, and we are focused under Sandip's leadership to get back to driving profitable growth.

With that, let me turn it back to Sandip.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [5]

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Thank you very much, Aric. Before we go to the Q&A session, let me reiterate a few of my beliefs. Number one, I believe the TESSCO team has the talent and the passion to win. Number two, the changes we've recently made to our organizational structure, our sales discipline and our web strategy are the first steps along the road to making TESSCO best-in-class. Number three, our market is expanding, driven by new technologies such as 5G, WiFi 6 and CBRS. Now this together with the reality of edge computing and cloud-based applications will usher in new applications, such as IoT, augmented and virtual reality, smart cities, smart metering, et cetera. Number four, in order to succeed, our customers will need complete and complex end-to-end solutions from TESSCO, and that this need will increase over time.

We are going to be very focused on anticipating these needs and aligning our investments appropriately.

I want to take this opportunity to thank the TESSCO team, our customers, suppliers and shareholders for the warm welcome they have extended to me. I'm very optimistic about TESSCO's future even more so now than when I first took this seat two months ago.

With that, Aric and I will be very happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Maggie Nolan with William Blair.

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Theodore Riley Starck-King, William Blair & Company L.L.C., Research Division - Associate [2]

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This is Ted on for Maggie. So I wanted to dig in on the VAR and Integrator business, and Sandip, I think you mentioned kind of a refinement of the go-to-market strategy there might help you guys gain some traction. So could you add a little bit more color in terms of how you plan to refine that go-to-market strategy?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [3]

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Ted, thanks for the question. Look, a couple of things to -- points to stable, right, as I answer your question. First, in this particular segment, the VARs, the end users, I mean, this has been historically a strength that TESSCO has built on. That's point one. So we have to appreciate that. Second, our brand is pretty well known, right? Now what has happened over time is two things that we need to refine. One is our understanding of the end users, right? We call it the VAR and end user market for a reason because both -- either TESSCO directly or through VARs, we anticipate needs of the end users, and we sell to them, right? So our continued understanding of the pain points, right, to improve our solutioning capability, that's something we need to not lose, we need to get back to and we need to embrace completely, right, so that we are much more relevant and continue to be relevant in the market. Ted, that's point one.

Point two, the buying behavior, right, of the end users and the VARs actually are multichannel, right? They come -- they procure through our website, they procure by calling us directly, and we also lean forward and sell to them. So that's almost an omnichannel experience. And over time, one of the things we've kind of let happen is we've had weaknesses in various parts of this channel, if you will, things like what we are doing on our website, that we need to aggressively fix. We need to provide the same experience that we provide when a salesperson calls, when a customer calls in or when a customer comes through our website, and we're aggressively doing that.

And then finally, right, in terms of how we follow up, I mean, TESSCO has historically had a very personal touch and a good experience that we provide our customers, and we need to get back to that intimacy, right? And the way to do this using tools we already have, I mean, how we manage the pipeline, how we build the pipeline, how we follow up on the pipeline to make that a science and devote management attention to ensure that it happens.

Ted, did I answer your question?

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Theodore Riley Starck-King, William Blair & Company L.L.C., Research Division - Associate [4]

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Yes, that was really helpful. So I also wanted to dig in a little bit on the project delays at carriers. I guess, how much visibility do you have into the duration of that? I know you mentioned that you're seeing some easing of delays. Do you -- is that going to be more back-half loaded as we think about 2021? Or is that something that we can think about here in fiscal '20 as well?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [5]

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Yes. So I'm going to base this on two things, right, feedback that we're getting from our own channels, right, plus things that are available in the public domain that you and others on this call all have access to. So let's look at what has been driving some of these delays. So first is there were -- people have talked about pain points on radio availability. I mean this accompanies any introduction of new technologies, right? 5G radios, other radios, cost structure, shipping used to be part of my prior life, but I think this audience understands. So that's been a contributing factor.

The second factor has been availability of skilled labor, right, in the geographies and in the areas where people need them. And these things, historically, I mean, shake out over time. Networks get built.

And then finally, when you get done with the macro network, right, I mean, if you think of some of the frequencies that are being used, the millimeter wave technologies, the smaller cells, the more advanced electronics and antennas going forward, it's a little more complex than historically what these macro network deployments have been. So my belief, right, is that, and I'm using historical analogs here, that these things shake out over time and pick up momentum. For our business, right, how we embrace, how we are well aligned with the tower builds, I gave you some examples, I think we are beginning, based on channel feedback, the radio shortages, I mean those are being overcome. So I expect quarter-over-quarter that -- the momentum to pick up again.

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Theodore Riley Starck-King, William Blair & Company L.L.C., Research Division - Associate [6]

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That's very helpful. And so as we think about kind of the 5G and the level of adoption currently, we're starting to see some headlines about kind of implementations of the 5G network on a smaller scale. I just wanted to see what your guys' view is in terms of the current level of adoption of 5G and kind of how you think that will ramp up over time.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [7]

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Well, I mean, to be very candid, we don't see an impact or a lift to our business yet, I mean, from 5G alone, right? We are winning business. We are winning -- as I mentioned earlier, right, we are winning contracts, getting ourselves positioned in the value chain. But in terms of the broader mass market, how many 5G devices are already out there, I mean, that's low compared to overall.

So I'm going to put a lens, Ted, that covers multiple aspects of our business, right? I mean there's -- you'll see things like FirstNet, right? I mean that's one aspect of our business where 5G will have an impact. There's the traditional carrier build-outs, right? That's another lens that we have into what you're, I think, asking about. The third is from a retail MDA aspect, right? When will we look and get some of the new device accessories, if you will, right, when IoT comes to play or when augmented reality, virtual reality, when we see a lift from AR/VR devices? So there are multiple aspects of our business that kind of leverage availability of these 5G networks. So from that broad spectrum, we don't see a lift yet, right? From discrete parts of our business, like how we help the tower business, yes, we are seeing traction and lift. But there's much bigger vector here that we hope to ride.

Does that help?

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Theodore Riley Starck-King, William Blair & Company L.L.C., Research Division - Associate [8]

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Yes, certainly, certainly. And then, Sandip, coming from outside of TESSCO, you bring a certainly different perspective to this business. So I guess how do you plan to leverage that perspective? Are there relationships that you expect to be able to carry over from your prior stops that you think will be able to benefit TESSCO long term?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [9]

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Well, it's a pretty broad question, right? Look, I wear a TESSCO badge. I'm a TESSCO person now, right? So that's point one. Point two, I mean, I don't want to underestimate -- or anybody to underestimate the power and passion we have at TESSCO, two. We have to leverage that. And third, I mean, each one of us brings relevance from the broader industry, and I absolutely want to bring that to the table and utilize.

The biggest challenge -- set of challenges for us, I mean, I outlined on the call. I mean some of those are easy, some of those will require focus and time. So one step at a time, I think we've double-clicked on a lot of the analogs that drive our top line, right? Next set of things which I have commissioned, and I mentioned this in our earlier comments in terms of our overall capital allocation strategy and investments to make sure they're aligned with where we need to grow. I'm confident we can get there. And then it's the -- a lot of building pipeline and the science of sales, if you will, right, that we need to embrace and adopt.

So yes, I absolutely bring -- want to embrace what I -- and bring to the company what I have experienced. I mean it's more than just contacts. It's an approach to the business and a belief system that is very close to what the company already has.

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Theodore Riley Starck-King, William Blair & Company L.L.C., Research Division - Associate [10]

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Certainly. That makes a lot of sense. And then last question for me. What was the share count this quarter?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [11]

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Yes, Ted, it's 8,650,000.

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Operator [12]

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(Operator Instructions) And your next question comes from Bill Dezellem with Titan Capital.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [13]

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I have a group of questions. First of all, I want to pick up on the question about 5G that was asked earlier. What are you hearing from the carriers about their 5G build-out plans? And what is your sense about whether those are being pulled in, pushed out? And how steep of a ramp, when they do begin, are you anticipating?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [14]

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Bill, thanks for the question. I mean just like the previous discussion with Ted, right, I mean, there's two avenues of input we get, right? One is what our customers, the carriers mentioned in the public domain, and the second is from our own channel, right? And from our own channel, there's information flow, and then there's transaction flow, right, orders, et cetera.

From -- so with that lens in mind, I talked earlier about some of the problems: radio, supply issues, radio cost structure, skilled labor, et cetera, I won't repeat. I think our customers and some of our partners and other players in the ecosystem have already talked about that. So that's point one.

Point two, you're asking for a specific time frame, right? Our belief is that it's second half of calendar 2020 when we will see mass adoption. And by mass adoption, this is when we will have gotten over the builds which we see and benefit from relative to our -- what we call our carrier business. Second, we will see things like FirstNet and others come to fruition. And then when we see mass adoption -- mass market adoption, you'll see impacts to our overall MDA, the mobile device accessory and the Retail business, when we will see new forms of accessories hit the market, which is essentially the premise behind 5G. And we hope through other strategies we are developing, Bill, to participate more broadly in this ecosystem than we do today.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [15]

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Okay. Let me take that a step further because I may not have been super clear with the question. If the second half of '20 is when you're thinking that there'll be mass adoption of the 5G, I mean, doesn't that imply that activity level at the carrier infrastructure level should pick up much sooner than that and be quite a steep ramp? Or am I misinterpreting your comments?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [16]

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No. Yes, I think you got it correctly, right? I mean -- look, I mean, a lot of -- 5G is not a greenfield deployment, if you will. It's a new technology, right? And the way -- and I have -- I'm leveraging my past, right? When 3G came along or 4G came along, it had to be backward compatible so as people roamed, you could hand down -- hand off. And 5G will be no different, right? So it will initially start out as an overlay. And then as handsets and other devices flip over from being dual technology to a single technology, I mean, you've seen this movie before, right? It will not be any different. I cannot -- I should not get into proprietary discussions that we have with some of our customers in terms of exactly where they are starting to build out and what their strategy is.

But in terms of our own business, if you look -- I mean we participate in what I consider three phases of this, of 5G deployments. So part of the build strategy, right, as people put radios on towers, how they actually build out that technology. So we participate in the build. That typically comes pre mass adoption phase, right? The second part we get into is when you get into in-building distribution, when you get into distributed antenna systems. And we expect to participate in many different ways in that part of the build-out, right? I'm calling it Phase two of the build-out when you're going into targeted areas to drive further adoption.

And then there's, let's not forget, our mobile device accessory/Retail business, right? If 5G is just going to be another way to do voice, I mean, that will be a big disappointment for the overall industry. I mean it's -- people are very excited. I am particularly excited about the possibilities of 5G, how that together with things that will happen in the adjacent market, right? I mentioned edge computing. I mentioned cloud applications. All of that have to come together to drive things like IoT, right, to drive things like AR/VR. That will have an impact on devices and device accessories. So that's the third phase of what we see. And this is -- if you look back on how 3G evolved or how 4G evolved, I mean, this is a decade-long cycle. And 5G will be no different.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [17]

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Let me switch slightly. You mentioned several carrier and turf contractor wins in your opening remarks. Would you please talk to the timing and magnitude of those wins, please?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [18]

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Yes. Look, I can't go into specifics and violate something that my friend, Aric, said earlier. So Bill, we are not giving guidance on -- specific guidance on third and fourth quarter. So I need to stay within those confines. Hopefully, you understand why I need to be -- why I need to follow Aric's rules, if you will.

So that -- with that in mind, I mean, look, I mean, when we mentioned some of these things on a call like this, I mean, this -- usually, a lot of the things I mentioned are past tense. So we have one contract. Some of them, our share in the overall value chain, if you will, and we are excited even expanding from there into exclusive arrangements, right, that we have recently won. I'm confident of using statements like it will double our business, right, in some categories, some segments, but I need to stay within the framework of what Aric described to not be able to give you at this time overall impact to our business. Aric, would you like to comment?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [19]

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Yes. I feel like I can add a little bit to that. This quarter, we had a handful of turfs that we've historically done either little or no business with that increased dramatically their market share with us. So when we made those comments about some of the key wins, there were about three to five of the midsized kind of turf-type vendors and larger contractors that historically we've done a little bit of business with but are now giving TESSCO a bigger piece of their share. And they're not $10 million-type customers, at this point of the day, did grow significantly from a year ago to where we are today.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [20]

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I hope that helps, Bill.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [21]

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Yes, it does. Next question, if I may, please. The VAR strategy and the refinement that you're looking for there. In an earlier question, you began to open up a bit about that process. Would you add additional perspective and insight into more of what needs to be done and how you're going to go about doing that? And anything you can mention on timing, keeping in mind, Aric's request, of course, would be helpful.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [22]

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Yes. Look, here, the strategy is pretty simple, right? It's reclaiming our trajectory and momentum, right? That's how I think about it. The three elements that we have to -- that we have double-clicked on and put in place, one is our web strategy, right? We've kind of let it not remain current. I mean we've talked in the past about some changes that had happened in prior quarters. I'm not going to repeat that. But in terms of focusing on how we attract eyeballs, measuring impressions we get, making the experience easy, things like shopping cart, catalog, I mean, just ease of use and then monetizing that experience, right? I mean what I'm telling you is fairly straightforward in e-commerce or our web strategy.

But we have gone back to basics. We have devoted resources. We have made it a priority. And we are seeing -- how do you measure success, right? We measure success in a couple of ways. One is how many impressions you're getting, right, results of organic search, et cetera. We are seeing an uptick in that already. The ease of experience will take some time, but we have people devoted. We are working directly with some of our customers, engaging them in feedback, engaging their experience, learning from that and helping us improve. So that is work in progress, present tense. I expect that to contribute this quarter, right? And then in terms of being able to monetize, you will see that in our results. I mean we don't break out Tessco.com in our results, but it's a big contributor to our overall VAR and end user business. So that's one platform, right, if you will.

The second one is our ability to lean forward, right, devoting resources to the end-user customers themselves, right, together with the strategy around regionalization that was put in place in prior quarters. I mean that is still the right strategy, right? But we still need to lean forward. We need to understand the end-user dynamics. And in earlier days, we would use the term kitting, right, in terms of what we brought to the table. With where we are today in terms of how people buy, I mean, it's our program management capabilities, it's our design capabilities, it's our -- the other -- rest of our solutions, the credit facilities, logistics facilities, how we knit that together to a solution to target some of the dynamics you were talking about earlier, right, radio shortages, the 5G build-out, other aspects of the VAR business. They're not typically in 5G, but it's WiFi, it's other relevant technologies that we can be much better, much more closer to where the -- end-user needs are. So we've made -- we are making specific changes to reclaim that, if you will.

And then finally, it's sales discipline, right? It's sales discipline in a very classic sense, focusing on building pipeline, focusing on people where we might have seen revenue drop-offs, bringing the personal touch from a sales perspective and then, frankly, managing that pipeline the way modern sales organizations do.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [23]

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That is helpful. I have two additional questions, and then I'll step off. Number one, Aric, would you please talk to the tax rate? And this quarter was at 90 -- 90-plus percent this quarter. And what was behind that? And then, Sandip, when you look out two years from now, would you just discuss kind of how you view that two year time horizon and what the industry and the TESSCO business specifically looks like?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [24]

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Yes, I'll start with the tax question. Certainly, it looks a little odd this quarter. The combination of -- it's really the ratio of permanent items in our tax rate compared to our overall pretax income. And those ratios were a little out of whack this quarter after the big loss in Q1 and coming back with a breakeven quarter right now. So I would look at that as a one-quarter anomaly. And probably the rest of the year, if you were trying to model, I'm sticking to a tax rate that's really around the 20%-ish range for the rest of the year.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [25]

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Bill, if that answered your question, I will tackle the second part of your question. Look, here's how I think about this. I mean let's look at two years back and then two years ahead, and I think gives you a better time horizon. And the -- what TESSCO was and still is very, very good at is how we kit, what I'm going to say, passive components to the industry, right, cables, antennas, jumpers. And we basically customize, tailor an assortment of line items, if you will, that we bring to -- that we supply to our customers at their point of need in time for what they need to do with the right logistics, with the right credit facilities, soup to nuts, if you will, right? And we do that very well, and we're sort of unique. As we -- this is something we started in the past. This is a snapshot of two years ago, TESSCO, right?

If you fast forward two years from now, look, you were asking earlier about 5G. I mean the overall taxonomy of networks in terms of how many passive components you have versus how many active components you have, the advent of technologies such as MIMO and active antennas and how these antennas get connected through the front haul, back to base stations, I mean, that topology basically changes, right? So two years down the road, I mean, we see a lot more software content, right, in the components we will distribute. We see a lot more active electronics in the components that we will distribute.

So our overall "kit," right, if you will, is going to look very different, and our customers will need to worry about things like software licenses, upgrades of kits. It will be a different mix that we will end up driving. So the opportunity for TESSCO is to, once again, provide soup to nuts, right, a total solution. The mix of that solution will look very different. I expect the mix of our revenue to follow suit. And in terms of how we think of quarter-over-quarter growth and the types of revenue, the quality of revenue, if you will, that mix to change.

Now I need to come back to not giving forward guidance, which is what we are going through, until we've had a chance to look at our overall investment strategy. And what we are after here is building long-term value for our shareholders, okay? But hopefully, I was able to give you another -- some color into our thinking going forward.

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Operator [26]

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There are no further questions at this time. I will now hand the call back for closing remarks.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [27]

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Thank you, Ashley. Thank you, Jamie and Aric, for your participation on this call. I want to just repeat something I said earlier, but it's important, worth repeating. Really believe in the opportunity in front of TESSCO. I mean we sit in an important part of our value chain, right, where we can add value to our suppliers and we can solve problems and make our customers more relevant and more successful, right? Very few companies sit in a business model or a taxonomy that can add value to both ends. I mean set of things I bring to the table here that you will hear me talk about much more, I mean, customer intimacy, innovation and how we become much, much, much more easier to do business with.

I want to close by thanking a lot of you who are on this call but, most importantly, the TESSCO team for all the work that they have been putting in, for the warm welcome they have extended to me and for the good questions, right, that Aric and I heard on this call.

So thank you, everyone. Good day.

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Operator [28]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.