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Edited Transcript of TESS earnings conference call or presentation 28-Jan-20 1:30pm GMT

Q3 2020 TESSCO Technologies Inc Earnings Call

HUNT VALLEY Jan 31, 2020 (Thomson StreetEvents) -- Edited Transcript of TESSCO Technologies Inc earnings conference call or presentation Tuesday, January 28, 2020 at 1:30:00pm 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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* Margaret Marie Niesen Nolan

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

* Timothy Colin Call

The Capital Management Corporation - President & CIO

* William J. Dezellem

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

* Jamie A. 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 Q3 2020 TESSCO Technologies Incorporated Earnings Conference Call. (Operator Instructions)

I would now like to hand your conference over today to Jamie Bernard from Sharon Merrill Associates. Please go ahead.

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

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Good morning, everyone, and thank you for joining TESSCO's Q3 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. Good morning, and thank you, everyone, for joining us. This is my second earnings call as the CEO of TESSCO. The first came soon after I started at TESSCO. And today, I'm at my five-month anniversary. I've now had a chance to experience the rhythm of the business for a full quarter. During this time, we have also undertaken a deep look at how we utilize all of our assets and I've had -- also had the opportunity to spend quality time with many of our customers.

Last quarter, I discussed the need for TESSCO to focus on the customer experience, implement a stronger sales discipline, improve our forecasting and inventory management and invest in our e-commerce website. During the third quarter, we've made good progress on each of these initiatives. When I joined in August, I believed that TESSCO was uniquely positioned to capitalize on the exponential growth, the technological change and the result in complexity driving our industry. Today, I am confident that the moves we are making and undertaking will position us to optimize our role in that evolution. During this call, I will share with you our progress on each of these initiatives and the path we see for TESSCO going forward.

Let us first start with our results this quarter. I'll give you a brief overview and share the progress we've made on our initiatives. I will then ask Aric to provide a more detailed look at the financials. And finally, I will come back after that and talk about our vision.

Based on the information we had at the time of our second quarter call, we had projected an operating profit for Q3, largely because of two items related to our Retail business, that did not happen. As we shared in our press release, our loss included a goodwill impairment charge of $2.6 million, which was caused by continued year-over-year decline in retail sales and profitability. Additionally, as a result of slower sales and the discontinuance of several versions of OEM devices in the Retail channel, we also recorded an expense for excess and obsolete inventory of about $3 million, higher than last year's third quarter. The combination of the impairment charge and the incremental excess and obsolete inventory expense made up for a vast majority of our operating loss. Outside of these two items, we would have experienced a much more modest loss.

Let me now speak about our three markets and our Ventev business. I'll start with Retail. While our Retail sales were up sequentially, this business does not compare well with the same business from a year ago. This is primarily due to the large Retail customer transition we discussed in Q1. Now clearly, we have work to do in this segment, and we are executing on two very disciplined initiatives, inventory management and how we leverage our strategic partnerships.

First, in terms of inventory management, we have enhanced our team, including appointing new leadership and have created an analytics-driven process. Through this, we have implemented new discipline to ensure optimum inventory availability, while at the same time, improving turns. Simultaneously, we are using data analytics to assist our customers and focus on delivering them the highest running SKUs. These efforts will ensure that our customers are efficiently served while optimizing our overall inventory, improving inventory turns and lessening E&O risks.

Second, we are working closely with key strategic partners such as Google, Samsung and ZAGG to develop unique and exclusive programs and offerings. For example, we continue to expand our relationship with Google and now support a much larger base of customers with Google products. Second, we are winning new customers through our strategic partnership with Samsung. This is as a result of consolidation in Samsung's distribution channels. We are now Samsung's top distributor for mobile enhancements. And third, with ZAGG, ZAGG recently announced an exclusive partnership with TESSCO to provide their Invisible Shield product, which will enable in-store custom film protection on demand. We believe we can improve overall profitability in our Retail segment due to increased business discipline, better inventory management, mitigating tariff costs and leveraging our strategic partnerships more effectively.

Second, VAR and Integrator. During our second quarter call, I mentioned that our go-to-market strategy in this segment needed refinement. Over the last 90 days, we enacted two of these refinements to our strategy by broadening direct sales coverage and renewing focus on end users, starting with utility customers. When the go-to-market strategy was modified about two years ago, the focus was on top-performing customers. And that simply wasn't enough to drive growth. We have now doubled down on this segment and hired additional sales talent. This has significantly improved direct and assigned account coverage.

TESSCO had historically been good at understanding technology trends and needs at the end user level, and as a result, the company had been able to effectively communicate that knowledge and winning specifications back to our VAR customers. When the sales force was reorganized on a regional basis this vertical industry knowledge was disbursed and became less effective. We have now assigned a team of seasoned sales professionals for the utility sector, which historically was our largest vertical. This has helped us reclaim a competitive advantage. As a result of this new approach, we saw sell-through to the utility sector grow in the third quarter for the first time in three quarters. We plan to industrialize this construct and replicate across other verticals.

Moving on to Public Carriers. For the first time in three quarters, we experienced a year-over-year increase in Public Carrier sales. This growth predominantly was a result of strong sales to AT&T turf contractors and Verizon contractors. We are either the sole or primary suppliers to a number of these customers and they have been winning new awards from both AT&T and Verizon. Our overall offer in this space is very competitive. It blends our OEM partnerships and our logistics and kitting capabilities. Additionally, our customers are benefiting from software APIs and dashboards we have created to allow them to better manage their inventory needs and overall spend. The contracts we have in place already will help us improve our market share as these larger carriers drive more contractors' spend towards materials and distribution agreements they already have in place. Finally, as you all know, some of the larger carriers either slowed or halted their construction spend at the end of the calendar year, which, by the way, was our third fiscal quarter. Now as these bills resume, we believe we are uniquely positioned to capitalize on the spend.

Let me talk about Ventev. The Ventev Infrastructure business posted both year-over-year and sequential gains. Ventev Infrastructures products have been spec-ed into several projects, two of which resulted in Q3 sales, with additional demand expected in the next few quarters. These include an award from one of the largest paper manufacturers in the U.S. with over 170 warehouses. This project is expected to be completed by the end of calendar year 2020 and includes Ventev enclosure with integrated antennas. We won a bid for a custom antenna for one of the country's largest grocery store chains. The customer awarded the business to TESSCO due to our ability to customize an antenna and to meet their specific needs with speed. This custom antenna will be placed in all store freezers with a completion date of July 2020.

Ventev has also continued its partnership with two of the largest theme parks in the world, designing esthetically pleasing custom smoke detector mounts with quick installation capabilities. We also outfitted all the wireless networking accessories for one of these theme parks' newest exhibits in Japan. We introduced ceiling tile enclosures for new access points and a new warehouse antenna. We are working with one of our key manufacturing partners to design an integrated custom solution targeted for the oil and gas industry. We expect to see continued momentum from the ramp of WiFi 6. As major radio manufacturers release their products, we will continuously broaden our portfolio to support these devices. Growth drivers in infrastructure products will come from antennas, enclosures, power systems and cable. And these, as you know, are particularly relevant in industrial applications.

Ventev MDA sales, however, were affected by the transition of the large retail customer we discussed earlier, and the general softness in the retail market. At CES, Ventev Mobile introduced a suite of new products with the latest in charging technologies. These products are targeted to meet different consumer use cases and retail price points, and they include our limitless product line. We offer magnetic docking, wireless charging and multiple device charging solutions.

To summarize, in this quarter, we saw good results from our Carrier business, our Ventev Infrastructure business and good initial results from our refocus on the utility sector. We also have made steady progress with each of the initiatives we launched to improve TESSCO's near-term performance. As I mentioned at the outset of the call, these include focusing on the customer experience, implementing stronger sales discipline, improving forecasting and inventory management and investing in our e-commerce website.

Let's look at our progress on each of these initiatives. Starting with improving the customer experience. During the quarter, we conducted a review of our customer experience by engaging customers directly. This has resulted in improvements to our order processing capabilities, and the use of AI techniques and algorithms that improve overall customer responsiveness. We have enhanced our business intelligence tools to support stronger sales discipline; these include improved pipeline visibility, dashboards to quickly evaluate and address issues, and continuous improvements of processes and procedures to modernize all aspects of our sales cycle.

To address the need to improve our forecasting and inventory management, we are reviewing and refining velocity codes for several of our SKUs. We have enhanced our demand planning team and restructured our purchasing and vendor-managed inventory organizations. We are conducting an audit for all our processes and are making swift changes to those we determine to be suboptimal.

And finally, we are making good progress with tessco.com. We created a team of website experts who, once again, engage customers directly to identify areas of improvement. We have a project plan for website improvements and have deployed tools that improve our ability to capture and track online customer behavior. Through this analysis, we've determined that the number of searches that came to our website from outside search engines has decreased significantly. We have engaged search engine optimization experts and are already seeing improved and more positive results. During the past few months, our search results have returned to the levels that we had not seen in over a year.

After Aric reviews our financial results for the quarter, I'll return to discuss our vision for the long term. 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 Sandip mentioned, while our third quarter results were affected by softness in the retail market and the resulting goodwill impairment in inventory write-offs, we made progress in several areas of the business. Let me give you the financial overview of the third quarter.

Revenues totaled $139.6 million, compared with $152.3 million in the prior year quarter and $141.8 million in the sequential second quarter. Gross profit for the quarter was $23.1 million, compared with $31 million in the prior year quarter due to lower sales volume and higher cost of goods sold related to excess and obsolete inventory. As a result, gross margin was 16.5% of revenues for the third quarter compared with 20.4% last year.

Our incremental tariff costs to date this year, which primarily are related to Ventev Mobile accessory products, have been approximately $1.6 million, with about $200,000 of that in Q3. As we expected, the tariff issue was largely mitigated by the end of Q3. We believe over 90% of all Ventev power products we manufacture in the current fourth fiscal quarter will not be subject to tariffs.

SG&A expenses were down 3.7% from the prior year quarter due to lower sales and our cost reduction efforts. The loss before income taxes was $6.3 million compared with earnings before income taxes of $3.2 million a year ago. The $6.3 million loss was primarily driven by two factors, a $2.6 million goodwill impairment and a $3.2 million year-over-year increase in cost of goods sold relating to excess and obsolete inventory. Both of these items are primarily related to our Retail segment.

I want to spend a few minutes discussing the incremental excess and obsolete inventory. The Retail business has always been subject to periods of higher and lower E&O as the business ebbs and flows. This year has been more difficult than in years past. The inventory purchases we made in the past year did not accurately take into effect the significant downward trend in retail sales we have experienced this year. Additionally, the discontinuance of several phone models has caused more inventory obsolescence than normal this year. As Sandip mentioned, we have taken several measures to attempt to mitigate this problem going forward.

Net loss and loss per share were $5 million and $0.59, respectively, for the third quarter of fiscal 2020. This compares with net income of $2.7 million and diluted earnings per share of $0.32 for the prior year third quarter. We did see improvement on our balance sheet. Our inventory balance decreased by approximately $13 million from the end of Q2 and $31 million since the end of Q1 as a result of our company-wide initiatives to reduce inventory, while not impacting our offer availability to our customers. Our line of credit balance decreased $6 million this quarter to $29 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 flows.

As we noted in our release, our Board of Directors determined it was appropriate to reprioritize our capital allocation strategy to enable us to make the necessary technology and talent investments to drive profitable long-term growth. Accordingly, the Board reduced the company's dividend to $0.02 per share, which will be payable on February 26th, with a record date of February 12th.

As Sandip will describe momentarily, these investments and the successful execution of our strategy will enable us to capitalize on exciting growth opportunities. We are well positioned in our industry, and we look forward to further enhancing our offer and the value and experience we provide to our customers. Importantly, our lower cost structure will enable us to drive improved profitability as we grow sales.

I will now turn this over to Sandip to discuss our strategy to drive TESSCO's growth over the long term. Sandip?

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

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Thanks, Aric. Let me use the remaining minutes to share with you the highlights of our strategy and the path forward for TESSCO.

First, regarding Retail. Clearly, we must stabilize this part of our business, which has solid underpinnings, but it is not the same business that it was a year ago. With the steps we have taken and the ones we have announced today, I believe we have started down that path.

Second, as I mentioned earlier, we are very pleased with the progress we have made and the positions we have attained in our Ventev and Carrier businesses. The early indications from the VAR and Integrator markets are also promising. More importantly, all these assets and channels are well positioned in an industry that is expected to grow and grow significantly. This will be driven by technological changes from 5G, CBRS auctions, private LTE and the evolution of WiFi. However, what is more relevant for TESSCO, is that these technologies will have to be deployed and supported in different and more challenging morphologies: inside buildings, inside stadiums, manufacturing locations, warehouses, et cetera. And all of this will require small cells, it will require improved aesthetics and enclosures, innovative kitting to support unique backhaul and fronthaul requirements.

Furthermore, these dynamics will put a strain on the industry's existing abilities to manage and maintain all of the above. We are already seeing changes in business models, where neutral hosts, value-added resellers and others are solving some of the real estate, power and other complex issues in very new and innovative ways. Now TESSCO has deep relationships with all of these innovators, they are our customers.

Based on our work over the past few months, I'm confident that we can return TESSCO to a differentiated place in the industry through implementation of a three-pronged strategy. Our three strategic pillars will include, first, by regaining our competitive advantage in the core distribution business. We are redoubling our focus on being the easiest company to do business with, for both suppliers and customers.

Second, by industrializing our Ventev operations around aesthetics, environmentally tailored enclosures and quality. We already do much of this as part of our existing business. Our transformation will be around scaling our capabilities to be engineering-led, road map driven and to become an industry leader.

And third, we will invest in providing value-added and managed services with a mandate to resolve complexity and pain points for our customers, by reaching beyond the boundaries of where TESSCO has traditionally focused. Our domain expertise in how wireless networks are constructed and our existing customer relationships will be our differentiator. This business will be focused on developing a sustainable and incremental revenue streams with more attractive margins. With the successful implementation of this strategy, I believe TESSCO can become a disruptive force in the wireless industry. And by executing well on both our performance improvement initiatives and our long-term growth strategy, we will drive long-term value for our shareholders.

Now with that, I will turn the call over to the operator for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Bill Dezellem from Tieton.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [2]

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I have a group of questions. First of all, would you discuss the Public Carrier market and the sales growth that you saw and kind of tie that in, if you would, with your comment that carrier spending slowed with a couple of the carriers. So -- those two seem in contrast and favorable to what you all were doing.

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

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Bill, thanks for the question. I will take a stab at answering the three things you asked, I think. And Aric, you can jump in with any details I leave out. So first, Bill, from a Public Carrier market, I mean the end user spend is driven by the likes of AT&T, Verizon, T-Mobile, et cetera. Ourcustomers are people who construct networks for them, it's the MasTecs, the American Towers, Crown Castles of the world. Much of the spend is still in 4G. We saw some evidence that 5G was beginning to pick up. But all of that growth is ahead of us.

We have announced and I shared on this call today that we have contracts in place, agreements in place, in the AT&T turf ecosystem. So these are people who build networks for AT&T. We have similar contracts in place for the Verizon ecosystem. And we certainly did very well in those two segments. I'm not going to go into specifics around which customers halted or slowed programs, I'll point you to the larger industry, I think that there's been many public comments around that. It was a fourth quarter, fourth calendar quarter phenomenon, typically happens if you follow this industry over time. I expect the growth to pick up, and as a result, we are pretty optimistic about improving our position and market share. So that's one set of points to answer, I think, two of your questions, and you can tell me if I'm answering your questions.

The third point is around our overall offer. What I'm particularly impressed with and actually proud of is it's not just our OEM relationships, logistics, supply chain of materials, but it's also about how we are engaging some of our customers through software assets that basically help us expose our overall operations through application programming interfaces and dashboards that our customers can use to drive their logistics, their overall asset management, see consumption analysis, et cetera. And that makes us much more sticky to some of our customers and we distinctly add value. So it's all of the above that makes us optimistic about the overall public carrier ecosystem. Aric, do you want to add anything to what I said?

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

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Just to reinforce the first point you made, Sandip, the -- what seems to be the carriers slowing down, but our business growing is I think an indication of the market share gains we've seen. It's not one or two customers, as we're seeing more significant revenues from more customers as we continue to do well and bring in new customers into the fold. So I think that's the reason why we're seeing increased revenues in a period where the carriers aren't necessarily spending a lot.

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

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Bill, I hope we answered your questions.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [6]

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Yes, that takes care of it. Let me then build on that, if I may. You said that 4G was the vast majority of the spending. I think at the last call, you mentioned that you thought the middle of the year is when 5G spending would pick up. What are your updated thoughts on 5G spending and how quickly that ramps?

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

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I'm still optimistic about 5G spending, specifically that it's ahead of us. We see several carriers announce 5G build and availability that, as we just described, Aric and I, in the taxonomy we play in, boils down to our customers and then into ours. At this point, I'm going to say roughly 10%, maybe 15% of our overall business in this particular segment is being driven by 5G. So I expect that to increase over time.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [8]

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And is the middle of the calendar year still when you're anticipating that ramp to begin in more earnest?

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

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Yes. I mean the indicators we look to -- the industry looks to, right, Bill, are availability of devices. 5G devices, which will drive utilization and therefore, drive the need for increased capacity. If you look at all of those, mid next year is -- mid-calendar next year is what the industry talks about -- actually 2020 calendar year.

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [10]

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That's correct.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO & Chief Compliance Officer [11]

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Great. And then an additional question, in the VAR Integrator segment you'd mentioned that you were seeing some favorable, some early favorable developments. I'm hoping that you will provide us with some more, I guess, more examples or indication of green shoots, if you would, in that segment, please?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [12]

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We certainly want to -- as we make progress in the segment, it will provide you with color. The one end-user vertical that we talked about specifically on this call is the utility segment. That's the one we have doubled down on. So happy to provide color more from an anecdotal perspective. As we go forward, we will certainly do that. We are tracking it and we'll certainly share more with you when we get back with you next quarter. And our overall strategy is to industrialize, as I said, the construct, the go-to-market shape we are giving ourselves in this particular vertical, and we industrialize that and replicate across other verticals. That's the path that we're going down.

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

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Relative to the commentary that you had in your opening remarks that you were putting additional efforts beyond your top VARs and Integrators, which you said those just weren't -- those larger systems, they weren't enough to drive the business. Would you talk in more detail about what you're doing outside of that top group? And are you putting any additional effort to that top group? So a couple of more questions there.

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

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So three points, Bill. First, to the -- to our larger customers, right, focus, dedication, assignment of accounts and improvement in our overall offer. That's the strategy. That's point one. Point two, the two things I mentioned during the call, I think Aric also accentuated, we have increased our sales coverage, and I'm not going to go into specific numbers, we have increased our sales coverage to the large volume of VARs who have historically been very loyal to TESSCO. So that's point one. Point two, for -- it's basic business discipline, Bill, it's things like looking at drop-off accounts, it's items like people who have done business with us in the past that we need to get closer to identification of those accounts' outreach. In simple words, its assignment of accounts -- additional accounts to the increased bandwidth we have provided in the sales community.

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

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And what metrics do you have to provide us more detail around that?

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

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Aric, I'm sure, will be spending more time with the overall investment community, Bill. I mean over the coming months in terms of our sharing with you specifics on our overall strategy, and we can use that opportunity to dig deeper in areas that we can dig deeper on. So we'll be happy to follow-up, and actually looking forward to that follow-up with key stakeholders.

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Operator [17]

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Your next question comes from the line of Tim Call from Capital Management.

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Timothy Colin Call, The Capital Management Corporation - President & CIO [18]

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With the dividend freeing up cash, will some of that go toward debt paydown? And what do you see as the future trends for interest expense?

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

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So yes, I mean the first part of the dividend reduction will certainly go towards debt. But we also talked a lot today about investments that we want to make into the business in the Ventev area, into the core distribution business as well as into the services offerings that Sandip spoke about towards the end of the call today. From a future period, where we are today, is probably a reasonable baseline. We would expect it probably to come down a little bit over the next couple of quarters, but I wouldn't say it's significantly going to be different than where it is today because we will be investing some of that money back into the business in some growth opportunities.

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

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Thank you, Aric. Tim, if I could just elaborate on what Aric just said, you'll remember last quarter, soon after I came on board, one of the items we had agreed with our Board was to look at overall strategic allocation of all of our assets, the dividend is certainly one of those. And given the growth opportunities we see in front of us, I mean we are making a concerted effort to give ourselves the bandwidth and the capital to actually follow through and execute. Specific programs, specific product lines, specific developments to capture those growth opportunities. So this is one in a series of things that we are doing to give ourselves that bandwidth and that capacity.

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Timothy Colin Call, The Capital Management Corporation - President & CIO [21]

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Great. And then with the Retail segment, could you elaborate are you still achieving account wins, new retail channels, wholesale, consumer electronics, airports, others. Is that going well and progressing?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [22]

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Yes. So I think it is -- we've seen -- we talked about Google today, we talked about Samsung today. A lot of new wins are being generated from those areas. The ZAGG opportunity that Sandip mentioned will open some new opportunities for us as well. We are doing well in the airport channel, as you mentioned. And we're doing well in the department store channel as well. Unfortunately, those wins are being masked mostly by the large customer that transitioned earlier in the year and some of the general softness in the more traditional in-store channels. But we have a very strong business development team that's very aggressive in going out and winning some new opportunities for us.

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Timothy Colin Call, The Capital Management Corporation - President & CIO [23]

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And that customer loss should annualize in March. Is that right?

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

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That's right. Next quarter will be the last quarter that we have that year-over-year comparison.

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Operator [25]

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(Operator Instructions) Your next question comes from the line of Maggie Nolan from William Blair.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [26]

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I'm curious, how receptive do you anticipate your existing client base will be to some of the value-add and managed service offerings that you're planning to roll out here? And then how are you thinking about it internally in terms of what it could do in the way of bringing on additional clients or expanding your addressable market?

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

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Maggie, this is Sandip. I'll take the first shot at your question, which is a good question, and will ask Aric to jump in if he has anything additional. So first, Maggie, one of the things that's been true in this overall market is that when you look at customers, they don't deploy just one vendor's products. It's typically a multivendor solution that they deploy. And somebody like TESSCO, given everything we distribute, we are, by nature, multivendor, we are vendor-agnostic, and we are, for the most part, technology-agnostic. So when you think about providing value-added services, we can provide value to everybody. So that's point one.

Point two, some of the examples that I gave earlier in terms of us being able to bring software capability, encapsulate our overall program and expose APIs, we want to build on top of that to be able to solve additional pain points. Additional pain points as follows: so the first area is, as you think of 5G, CBRS, just beyond those changes in physics and protocols, it's really a lot more active electronics, software-enabled devices that you will see being deployed from all different types of vendors. And with that, there will be a larger need to manage, monitor, upgrade, manage warranty around a set of topics we have identified with our customers that require more focus. So if we are able to provide in a multivendor, vendor-agnostic way, value-added services that is much needed in the marketplace. So we have come to believe that and that's one area we want to focus on.

Beyond that, as I described, as you get to small cells who provide capacity and coverage in areas that hitherto have not been tackled, the overall pain points around how these networks get constructed, it requires automation expertise, which we believe we have at TESSCO, given what we have been doing for over 30 years. So it's that domain expertise, the customer pain points and the intimacy we have with our customers that we need to exploit to deliver these services. So in short, software and services have always been in this industry about being multivendor, you will see this play out in the Carrier space, you will also see this play out in the vertical industries. And we think TESSCO is well positioned to exploit that. We will move forward iteratively, very focused and drive one success from another. That's our strategy. Aric, anything you want to add?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [28]

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No, I think you did a good job of answering that question.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [29]

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Thank you. Maggie, I hope we gave you insight into what you were asking.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [30]

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Yes, thanks, that helped. And then given the investments that you've talked about and the -- considering the strength and weakness in the various segments that you kind of outlined today, how are you thinking about the next year, are you expecting to see positive earnings in fiscal 2021.

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [31]

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Maggie, obviously, today we didn't give any kind of guidance. I would say we're very optimistic about 2021 and 5G and the other technology investments that are going to drive growth for us. But since we're not giving guidance for next year right now, I'm not going to comment on any kind of EPS figures for next year at this point.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [32]

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Is it about the long term?

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [33]

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Yes, long-term general directions would be helpful, if you can share any of that?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [34]

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Yes. Long term, Maggie, I will -- long term, we are very optimistic about the -- about the company for the specific reasons we outlined. And the approach we are going to take is a longer-term shareholder value as opposed to quarterly cadence. I think the company has talked a lot about some of the project intensities that drive things from quarter-to-quarter. We have talked about pipeline focus from a sales perspective. All of these things take you to the long term, and that's where we want to focus on, right, as we deepen and sharpen our strategy.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [35]

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Understood. And then as you think about all the things that you've talked about, including, in particular, the Retail piece of the business, you sound optimistic that you're underway in terms of stabilizing that business and that there are some good initiatives behind that. Is there any sense around timing, your expectations for when we really start to see some of that showing up in the P&L?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [36]

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Yes, I think, Aric alluded to this when he answered the previous question, Maggie. I mean this year, this fiscal year we suffer when we do year-over-year comparisons, right? If you go back a year ago, there was a different customer mix, very dominated by one large customer that we talk about every quarter. And we suffer from a year-over-year comparison because it's a fundamentally different business today. Just from a top line perspective. So that's point one.

Point two, given that this is a much smaller top line business. When you look at it on an annualized basis, the basic business disciplines associated with a business this size, is what we are bringing to the table. We have to be much more focused on what inventory you buy, you have to be much more focused on what SKUs you build up and you have to be much more focused on turns. At the same time, the nature of this business is around vendor-managed inventory. So you need to have inventory on the shelf, if you will. So it's a difficult balancing act. But given the focus we have brought, the tools, the processes and the analytics that we have brought to play, I'm confident we'll get this into the shape that it needs to be. Hope this gives you color in terms of specifics, we are -- things we are doing.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [37]

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Absolutely. Last one for me. What's your pulse on the culture internally at TESSCO right now, just given that there are changes going on? How are the employees responding and -- to the various changes that they're seeing across the business segments?

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [38]

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I'm very pleased, right, with passion, I talked about during the last call, that the TESSCO team brings to the plate. I think in general what is happening in the industry is good for us. Everybody's cutting the cord, and we have carved a niche for ourselves to focus on wireless. We don't want to be everything to everybody. We -- the focus is well received. In terms of the discipline, the process, change will be a continuum, right? And I'm confident that with the right focus, right leadership, balance with new wins, the team will remain excited.

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Operator [39]

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There are no further questions. At this time, I'll turn the call back over to the presenters.

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Sandip Mukerjee, TESSCO Technologies Incorporated - President, CEO & Director [40]

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Thank you, operator. I want to leave you with a couple of thoughts. First, we are very focused in terms of improving the basic business disciplines around inventory, our e-commerce site and we are embracing modern tools, modern technologies, to drive us forward.

Second, we will continue to refine and build upon the progress we are making in our VAR and industry segment. It is the most profitable segment for us. So as we make progress, it pays back in multiple ways. And I'm confident that as TESSCO, we will be able to reclaim the differentiation we once had in this segment. We are excited about the opportunities ahead of us, some of which we explained during our call. Others came out when we talked -- when we went through the Q&A section. And frankly, I'm excited about the decisions we've been able to make as a company to bring focus and to create capacity for us to invest in these growth opportunities.

Finally, I'm also very pleased and excited about the position the team has established, gained with Ventev Infrastructure business and our overall position in the Carrier segment.

I want to end by thanking our customers, our partners, OEMS, our investors and above all, the TESSCO team, for your continued support and to the TESSCO team for the passion they bring to the table every day. Thank you for joining us on the call today, and I look forward to speaking with you next quarter.

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Operator [41]

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This concludes today's conference call. You may now disconnect.