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Edited Transcript of TESS earnings conference call or presentation 23-Jul-19 12:30pm GMT

Q1 2020 TESSCO Technologies Inc Earnings Call

HUNT VALLEY Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of TESSCO Technologies Inc earnings conference call or presentation Tuesday, July 23, 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

* Murray N. Wright

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

* 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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Good morning, my name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the TESSCO Technologies Inc. Q1 2020 Earnings Call. (Operator Instructions)

Thank you. Jamie Bernard, you may begin your conference.

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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 Q1 2020 Conference Call.

Joining me today are Murray Wright, TESSCO's President and Chief Executive Officer; and Aric Spitulnik, the company's CFO.

Please note that management's discussion 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 Murray Wright, TESSCO's President and CEO. Murray?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [3]

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Thank you, Jamie, and good morning, everyone. Thank you for joining us on the call today.

Our first quarter performance did not meet our expectations. While we plan the loss in the quarter due to market dynamics and retail, including the recent loss of a large retail customer, this quarter's loss was larger than expected as a result to several factors. Customer shipment delays, slower-than-anticipated new business generation and greater-than-anticipated retail market softness, all contributed to these results. This quarter's loss does not reflect the underlying strength in our business, and we remain confident in our ability to resume our growth trajectory. Our value proposition is resonating with customers and suppliers, our business generation activities are beginning to yield results, and we have a clear path forward.

The objective of this call today is to review the Q1 results, and I would also like to discuss the initiatives we have in place to turnaround our performance and examine the opportunities ahead of us.

Let me start by providing you with a general overview of the quarter. In the Public Carrier ecosystem, we were affected by the inherent unevenness of the business as several large customers adjusted their forecasts or delayed their shipments in Q1. Additionally, although our efficiency and productivity has improved in our VAR and Integrator business, sales were essentially flat on a year-on-year basis.

The Retail segment continued to be a challenge due to the retail customer transition we discussed last quarter as well as slower-than-anticipated new business generation and ongoing overall market softness. Despite the confluence of factors that negatively affected our first quarter performance, we remain confident in our ability to return to a profitable growth trajectory over the remaining 9-month period of this fiscal year.

Our underlying business fundamentals are solid. We are gaining market share with several Tier 1 carriers and the related contractors as well as large national solutions providers and retail customers in new channels.

In addition, though masked by our volume declines in the first quarter, our cost management initiatives are working, and we expect these to benefit our results as we move past the top line interruption that affected the first quarter.

Now I want to discuss the details of our market results and the growth drivers, starting with our Public Carrier ecosystem.

After achieving at least double-digit growth year-over-year in 9 of the past 10 quarters, our Public Carrier business was down 17% year-on-year, primarily due to the adjustments in forecast or purchase delays by several of our large customers. 3 factors contributed to this market softness during the quarter: one, OEMs had difficulty delivering radios due to strong global demand as companies prepare for 5G. This resulted in an inventory buildup at many contractors as they waited for the radios to begin their installations. This issue is essentially resolved at this time; number two, crew shortages continued to be challenging in specific regions in the U.S., resulting in deployment and project execution delays. Due to these factors, inventory levels at some customers reached higher than normal levels; and three, a few of our largest Public Carrier customers did not consume significant amounts of inventory that we had purchased for them this quarter. We expect this product to move through the channel during the remainder of the fiscal year.

Despite lower sales this past quarter, the Public Carrier ecosystem business will return to revenue growth in the coming quarters.

Here are 5 factors that will contribute to achieving growth in this market: first, we signed a master purchase agreement with a Tier 1 carrier and have already been awarded a portion of a major DAS project for a government agency installation. This project represents a multimillion-dollar opportunity with hundreds of sites over the next 3 years; second, we are gaining market share with several of the large Tier 1 contractors; third, we recently won a multimillion dollar multiyear passive DAS equipment project for a major social media company, of which we have only shipped 4% this past quarter: fourth, we remain one of the top-performing distributors in a Tier 1 carriers minor materials contract and expect to continue to grow this business; and finally, our FirstNet business has been very active, and we expect this to continue throughout the year. As FirstNet builds begin to slow down early next calendar year, we expect 5G spending to be strong and growing.

Moving on to the VAR and Integrator market. Revenues were essentially flat on a year-on-year basis. While momentum in this business has not accelerated, we expect to see positive trends for FY '20. Here are a few initiatives that give us reason for our confidence. We've had success with national solutions providers, or NSPs, a small but growing piece of our footprint in this market with growth of well over 50%. As a reminder, these NSPs are multi-billion-dollar customers with whom we have not done any significant business in the past.

We are well positioned and have seen solid growth opportunity and public safety DAS as more cities across the U.S. have passed mandates for public safety communications systems in every building over a certain size.

We have created a unique IoT offering that we have spoken about previously, focused on edge devices to cloud connectivity. Our IoT initiatives are continuing to gain momentum and have been well received by our VAR and Integrator customers.

We are improving the execution of our regionalization and go-to-market strategy that we've discussed on previous calls. The market is good. We have a strong brand and presence, and there is a significant amount of additional market share we can capture. We expect to see an increased growth rate in our VAR and Integrator business once it starts to gain momentum in the coming quarters. This will add stability to our overall quarterly revenue performance.

Supporting the Commercial business, our Ventev Infrastructure division manufactures products that address the unique requirements of specific market verticals, including VAR's end users and Public Carrier customers. Sales of Ventev Infrastructure products grew 2%, delivering the fourth consecutive quarter of year-over-year growth.

While the results in Commercial segment were not where we wanted them to be this quarter, we remain positive about the business. The market share gains in the Public Carrier ecosystem, significant opportunities in the VAR market and the continuing growth of Ventev Infrastructure gives us confidence in our ability to profitably grow going forward.

Now turning to our Retail statement. As you are all aware, the dynamics in retail are constantly evolving. We continue to see significant consolidation at multiple levels throughout the supply chain. As we discussed last quarter, one of our largest retail customers, representing approximately 5% of our FY '19 revenue, was acquired, and the surviving entity selected a different business model in which TESSCO is no longer their primary distribution source.

As a result, we did not receive any significant revenue during the quarter from this customer. Additionally, sales were down for many of our larger customers due to softness in the market. Primarily as a result of these factors, sales in our Retail business were down 29% in Q1.

Last quarter, I said we expect to take a quarter or 2 to recover from the loss of the large retail customer. During the first quarter, our team did a good job building the pipeline of new retail customers, but not enough to meaningfully offset the lost revenue. We had significant growth at some of our smaller, but expanding channels, including a mass consumer electronics, wholesale and airport channels. We anticipate new business generation activities, combined with strong partnerships with our suppliers, will result in steady revenue improvement in the quarters ahead.

In our Ventev Mobility division, we have been focused on delivering more innovative products. We launched several new products in support of our retail customers, which were well received by the market. A few high-revenue Ventev opportunities include the Home Depot trials that are going well. We were awarded another geographic region during the quarter -- the first quarter. We also reached an agreement with one of our largest carriers in the U.K. and have already received our first purchase order for Ventev product, which will begin shipping in Q2.

I'll now turn the call over to Aric for a discussion of the financial results. I'll be back to provide some final thoughts and our outlook for fiscal 2020. Aric?

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

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Thank you, Murray. Good morning, everyone.

As you know, this was a difficult quarter for us, but we're running TESSCO for the long term. We feel good about the fundamentals of our business. Our team is fully engaged and energized about our growth opportunities. As Murray mentioned, several factors contributed to our performance this quarter.

We knew the Retail business would be impacted by the loss of the large customer relationship. However, the project-based delays in the Public Carrier ecosystem and the slower-than-expected realization of new business opportunities resulted in a larger-than-expected 29% loss.

This quarter aside, we've been on a growth trajectory during the past 2 years, and we are well positioned to resume that trajectory going forward. The leverage in our business model that hurt us this quarter will work in our favor again as we resume revenue growth in the near future.

We have fended several cost-cutting initiatives during the quarter, mostly related to compensation costs. We are being very measured with our cost structure. As we've said, we expect to grow revenues the rest of the year, and we are ensuring that we have the business generation resources and support in place to drive profitable growth and provide our customers with excellent customer service.

Now let me give you a financial overview of the first quarter. Revenues totaled $131 million, down 13% from the prior year for the reasons previously discussed.

Gross profit for the quarter was $25.3 million, down 17.7% from the prior year quarter due to lower sales, larger inventory write-offs and reserves and higher tariffs that increased freighting costs. As a result, gross margin declined to 19.3% from 20.3% in the first quarter of fiscal 2019.

SG&A expenses were down 3% from the prior year quarter. Additionally, this quarter included a restructuring charge of approximately $500,000 related to severance costs.

The operating loss was $3.3 million for the quarter compared with operating income of $1.7 million last quarter -- last year. I'm sorry.

Net loss for the first quarter was $2.5 million compared with net income of $1.2 million a year ago. First quarter loss per share was $0.29 compared with diluted earnings per share of $0.13 a year ago.

Turning to the balance sheet. Our inventory balance increased by approximately $30 million from the end of Q4, primarily due to 3 factors: first, as we mentioned in our Q4 call, we expected inventory to be up as we made strategic inventory investments to support our Public Carrier business. This included some of the inventory that we had expected to ship to a few large customers in Q1 that was delayed. This product will be shipped later this fiscal year; second, we took advantage of some special opportunities to buy product at lower prices. This should benefit margins later in the fiscal year; finally, the revenue shortfall had an impact on inventory levels. We do expect inventory to come down in Q2.

In line with the higher inventory, but partially offset by strong collections of receivables, utilization of our $75 million line of credit increased by approximately $6 million, and we ended with the balance of $20 million.

While the project-based business will naturally lead to fluctuations on the balance sheet, we remain focused on continuing improvements in working capital and cash flow.

We have set our dividend at $0.20 per share with a record date of August 7 and a payment date of August 21.

Now turning to the business outlook. For the rest of fiscal 2020, we expect significant improvement over our first quarter performance, including returning to quarterly profitability in the second quarter. While we believe that we will achieve year-over-year growth in revenue and earnings for the remaining 9-month period of the fiscal year, we are now less certain in achieving full fiscal year revenue and earnings growth.

We are executing on our long-term strategy, and we're well positioned to capitalize on high growth opportunities as the wireless ecosystem enters a widely anticipated period of double-digit growth.

Finally, I'm pleased to announce that on July 1, TESSCO was added to the Russell 3000 and Russell 2000 Indexes. Becoming a member of these indexes brings increased visibility among the investment community and other key stakeholders and reflects TESSCO's ability to capitalize on exciting trends in the wireless market.

With that, let me turn it back over to Murray.

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [5]

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Thank you, Aric.

Looking ahead, we believe with the initiatives we have in place, the markets we're focused on and the activity level within our team, we will return to profitability in the second quarter. We have a well-defined strategy. We are making solid progress in positioning TESSCO to capitalize on high-growth market opportunities, such as 5G and IoT. While our growth will not be linear, our strategy is solid and our opportunities are clear and significant.

And with that, operator, we will open the call for questions.

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Questions and Answers

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Operator [1]

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

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [2]

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So obviously one quarter does not make a trend. So I wanted to talk a little bit more long term here, and get your sense for how the business is doing. Within the Retail segment, what is your level of optimism about the ability to kind of build up the pipeline and offset some of that softness from the large customer that's transitioning away?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [3]

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Maggie, it's Murray. I think that our team is doing an excellent job of building the pipeline, and we've referenced this on previous calls that our footprint in the Retail business is expanding. We're opening up new doors and new channels. And we believe that, that will help to, overtime, once -- this is a crawl-walk-run process as you're initiating new business development actions. So we fully expect that those will continue to grow for us. And it was unfortunate to lose such a large customer, but our team is doing a good job in winning back the lost revenue there. It's just going to take a little bit of time as I referenced Steven in the last call.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [4]

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Understood. And then in terms of the spending delays and the changes in the forecast in the Public Carrier market, can you give a little bit more color on some specific customer impacts versus how you're feeling a little bit more broadly about the market in general?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [5]

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Sure. The Public Carrier ecosystem business, we have an excellent team at TESSCO, and we've done a very good job over the last couple of years as indicated by the previous results, taking share and building up the business. One of the dynamics that does make it a little bit tricky to manage at times is that it is project-based business, and we are in control of the supply chain up to the point where we get an order from a customer. And I think, honestly, if there were just some unanticipated delays that resulted in us buying product and keeping some inventory and the projects, I think, will continue absolutely for -- through the rest of the year.

So I feel good about this marketplace and I think that the value proposition that we have is resonating extremely well. Our team is very energized. We're continuing to win business. And although we can't discuss it on this call, stay tuned for some very interesting announcements that should be forthcoming in the second quarter.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [6]

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Okay. Very good. And then just a brief update on kind of what your team is doing in terms of managing tariffs and potential trade war risk? And how you view that -- kind of your updated outlook as of this quarter?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [7]

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Yes. From a tariff standpoint, obviously, we saw an impact here as last Q1 didn't have tariffs and this quarter was probably -- was roughly around $500,000 impact. As we said last quarter, we're working on supply chain mitigation strategies to get around those tariffs, and we think we're on pace to meet our plan. So we'll still see some significant tariff issues in Q2. But after Q2 is over, I would say, a minimum -- minimal amount of tariffs in the second half of the year as almost all of our Ventev inventory will be outside of China.

And from our distributed products, most of those tariffs were in a form of price increases that we're able to either reduce or adjust pricing for. So the net impact of those was fairly insignificant.

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [8]

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Maggie, I would also add though that all of suppliers and anybody that's connected into the supply chain back to China is -- they're trying to make decisions to best mitigate impacts for their respective businesses. And as a result of that, we referenced this on the call that we made some strategic buys that were deliberate in the first quarter. We expected sell-through in some the markets to be more robust. But nevertheless, we think we've made some very good decisions on purchasing inventory so that the company will see the benefits from those decisions in Q2 and Q3 and maybe even beyond.

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Margaret Marie Niesen Nolan, William Blair & Company L.L.C., Research Division - Analyst [9]

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Okay. Very good. And one last one if I can ask just kind of about the cadence of the rest of the year. I know predicting things on a quarterly basis is quite difficult, but it sounded like there was some optimism about profitability in Q2. Do you have enough visibility to kind of project that optimism on to the third quarter and the fourth quarter here? Or is it just too early to tell?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [10]

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Well, I think -- where we see the balance of the year is Q2 through Q4. We see it as being better than last year, same period. So if you look at this Q1 as a blip on the screen with the adjustments we've had to make in the business as a result primarily of the retail customer loss, we've had to recalibrate many things. The business is gaining traction. We believe that the upside opportunities balance of year looked very favorable for us. Perhaps not enough to offset the entire year's forecast for full year growth, but certainly Q2 through Q4, we remain very confident in our ability to execute on the balance of the year.

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Operator [11]

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(Operator Instructions) You're next question comes from Bill Dezellem with Tieton Capital.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [12]

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A couple of questions. First of all, would you talk in more detail about the Home Depot trial? And your winning of an additional region and the implications of this trial? And where we go from here with this, please?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [13]

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Sure, Bill. This is Murray. I think we've described these processes when we get -- when we break into some of these large opportunities. And first of all, you have to win the trial process. And then you have to gain momentum and they expand it from 1 store or 1 region to another region. And you know these companies are very diligent in their process, and I'm happy to say that our team, in collaboration with the Home Depot team, have authorized us to open up a second trial region in the country, and we're anticipating -- an early feedback has been very good on this. If you were to walk into some of the Home Depot stores, you'll see that the displays now have been completely reengineered to focus on more home and IoT-type technology. The displays actually look quite cool, and Ventev is very prominently displayed there. So I'd like to give you something more definitive, but we are working closely with the Home Depot team, and we anticipate that this will continue to go well. And as it continues to prove out, we will add more stores.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [14]

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So does that imply that you are not just a standalone Ventev display, you are part of a greater IoT, home security or otherwise related display?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [15]

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Correct.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [16]

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And then you're in 2 regions now. How many regions does Home Depot have? And what percentage of their stores do you currently reside in?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [17]

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Yes. This is strictly a trial, Bill. So I -- we have 1 in the West Coast that we started with and we have 1 in the East Coast. And honestly, I can't comment on what their strategy is, whether it goes -- whether they intend to populate all stores and all regions across the country. I think they're going to look at the sales and sell-through results and work with us. And I'll be happy if we go from 2 to 6 to 10, and we'll see how it goes from there.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [18]

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And when you say regions, you are talking multiple stores, not 1 store in each region. Correct?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [19]

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That is correct.

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [20]

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Every region is more of like a city.

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [21]

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It's more of a city and the surrounding stores they would have in the city area. Yes.

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

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So there's a lot of upside here if we go from 2 regions to -- if we -- are fortunate to go national, this is a pretty significant opportunity from a point right now where it's still a fairly immaterial revenue result in this quarter. But if we go national, this could be very significant.

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

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And if things were to continue on the current trajectory, how long before would you go national?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [24]

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Well, we've been at it now for 4, 5 months?

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Aric M. Spitulnik, TESSCO Technologies Incorporated - CFO, Senior VP & Corporate Secretary [25]

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Yes. 6 months or so.

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [26]

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Yes. 4, 5 months, or 6 months, and our team has been selling well in advance of that. I think we would like the momentum to start to accelerate, but I don't think that we can pinpoint the time other than there should be progress through each quarter if the trials are going well.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [27]

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Great. Let me then switch, if I may, to the carrier market and talk through if you would please, the project delays and how those unfolded this quarter, if you would. So we can understand the backdrop a bit better?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [28]

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Well, I think that we referenced it on the call, Bill. I think that there is some crew shortages that are hard to predict. Those create some challenges. I think some of our large customers were waiting on radios. And as a result of that, inventory backs up because you can't ship a complete solution. There's no point in shipping some products. So obviously, they don't want to receive any more product until they can move out and install the products that they are purchasing from us.

And then finally, the -- just the inventory buildup. Everybody knows that there is waves of business that are coming, and you want to be properly prepared for that. That's why, right now, for us, it's a little bit of a challenge to continue to manage the forecasting of their large projects and when they land. And I think we've referenced this on earlier calls. This, unfortunately, we are at the -- we bought the inventory, we had the forecasts and the projects for the reasons that I just indicated were delayed. And when projects that are material are delayed, it has that positive effect when it's good and it's got a negative effect when it's delayed. So that's the scenario that we were facing, unfortunately, this past quarter.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [29]

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And so would it be a fair guess that crew shortages, those will continue until we graduate more kids out of trade schools, and then the radio issue is really the bigger swing factor. Is that the right way to think about this or not?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [30]

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Well, the radio issue has been resolved. So it's just -- it was more of a supply chain delay issue that has been fixed now. So that allows us to move forward.

The crew shortage issue has been an ongoing challenge for the marketplace, for the contractors for quite a while now, certainly, well into last year. And as the intensity of the build outs continues, in order to make sure that the jobs get completed, you need talented crews. And so all the contractor customers that we're doing business with today have mitigation plans in place. They're trying to determine how they leverage labor opportunities in the marketplace. So we're working with them when we can help to be a bit of a matchmaker, and we feel as though that, that's kind of a value-add by-product that we're trying to help our customers with.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [31]

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That's helpful. Murray, would you circle back to the radio shortage and talk about how it developed? And now that it's resolved, how it -- how the resolution came about?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [32]

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Yes. I think that it's almost -- because there are multiple equipment manufacturers, I'm not sure that there's one answer that would cover all of them other than -- I would make the assumption that they did not predict effectively the demand and the need for the radios.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [33]

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So if I may, just make sure I understood that, that demand was greater than the suppliers anticipated, and so they simply came up short and now they've ramped up production?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [34]

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Yes. It was global as well, not just specifically for the U.S. I mean as the build out for 5G continues to accelerate and companies are getting themselves prepared for this, global demand for the radios increased and it caused a momentary blip in the system. There are primarily 3 OEMs that are in North America -- that are supplying North America.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [35]

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Great. And then lastly, would you talk to the carrier plans going forward. You mentioned that there are some good things that you have that you can announce. As you noted, there are 3 carriers, one of which I don't think you've done a great deal of business with. And the other 2 that you have. And I realize you're not going to preannounce your good announcement that you have later for this quarter, but I am hoping that you can provide a bit more color around how you see your interaction with those 3 carriers unfolding, and if anything is changing with carrier number 3, that I think you haven't done much business with?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [36]

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We have solid relationships, Bill, with all the carriers, and we're working on our value proposition continuously. Our sales team is doing a very nice job of positioning TESSCO because even though we have solid long-term relationships, I still would like more business from the companies that we have long-term relationships with. So that's really what our team has focused on. And often times this -- there's small wins that start to gain momentum, but we've certainly -- across-the-board, I can tell you that we have made inroads in all of the carriers. And the ecosystem that spills over from that is very beneficial to TESSCO as well.

So you will not hear about some of this for a little bit more time, but we are very excited about the prospects for our business with the Public Carrier ecosystem through the balance of this year. And keep in mind that it will be and beyond, but it will be project-driven kind of business that creates these types of scenarios for us. And I want you to have confidence as a long-term shareholder that we are doing everything we can to enhance the shareholder value at TESSCO, and we believe that the carriers are an important part of that overall puzzle. So our value proposition as well, Bill, I think is resonating with the carriers. And the solutions that we're bringing to the marketplace I think are valued and that's why we're winning business.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [37]

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Great. And I said that would be my last question, but I'm going to renege on that, if I may, and switch to the VAR business for just a moment. That, as you said, has not yet gained the momentum that you're looking for. What needs to be done in your mind to build the momentum in that business? And is it your view that, that is the single largest opportunity that you have going forward or is that not a correct view?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [38]

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Well, I think, the VARs have a tremendous opportunity going forward, but I think other parts of our business have an equal growth opportunity as well. What I'd like to just leave you with around the VAR business is, we've talked about regionalization and making changes to the business and although we really don't forecast or describe the results in this way, but the efficiency level of the VAR business is much higher today than it's ever been. In other words, the sales and gross margin per cost dollar is much higher than it ever has been. So we believe that that's demonstrating the good traction and efficiency of the business. Now what we need to do is start to put it on steroids. And you start to see glimpses of that with the national solutions providers, where we have to go in and displace somebody often times and that business is starting to really gain some traction, and we anticipate it will continue to grow.

So I think there's a number of factors that are leading to us feeling good about the future growth on the VAR business. And once we gain the momentum there, then I think that it will become a much more predictable business for us and that's the goal, make it predictable, make it -- make sure that we can come back to our shareholders and say, here's what we forecast for our VAR and Integrator business.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [39]

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And the DAS win for the government and the DAS win for the multimedia company, were these -- were either of these a part of that VAR reorganization process? And then, would you follow-up by diving into more detail in each of those 2 contracts, please?

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [40]

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Those were carrier wins -- carrier -- that carrier ecosystem wins.

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William J. Dezellem, Tieton Capital Management, LLC - President, CIO and Chief Compliance Officer [41]

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Great. And now would you talk in a bit more detail because we haven't heard you talk over the last couple of years about large DAS wins like this. So this seems a little bit unique and particularly, given it's coming from the carrier market. So it sounds interesting. Please tell us...

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Murray N. Wright, TESSCO Technologies Incorporated - President, CEO & Director [42]

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Well, we've always been very solid in DAS, and we're continuing to focus on that. Across the market, we believe that we've got a very knowledgeable sales team. And with the technical support that we have built over the last couple of years, we think that it's industry leading. So that's all contributing to increased focus on DAS and then there's market opportunities that are driving that as well.

I referenced in the call, for instance, Bill, the public safety becomes a very interesting discussion which -- VARs will participate in that, as an example. And the thing that I -- the reason that I want to raise that example is that we are engaged with our customers and looking for opportunities to present our value proposition and help them solve their end-user customers' challenges. And I think that there's a couple of -- the reason we're referencing the -- like the large social media company is because we all know that a large social media company, they're big, they use a lot of technology, and we're participating in some of the -- helping them solve some of the problems that they are encountering.

I just -- I think I'd just like to make a few final comments today.

This was a challenging quarter for TESSCO, and we're disappointed that we delivered a loss. There's no question. However, we feel very good about TESSCO's future starting in the second quarter. Our team is energized, we have solid initiatives in place, our value proposition continues to resonate with our customers and our suppliers and we see growth opportunities across all our markets. And there are exciting developments in the world of wireless that are on the horizon. So all these factors make us feel good about our strategy, the balance of the year and beyond.

And I'd like to thank everybody for joining us. We appreciate your support of TESSCO. And as always, I'd like to thank our team members for their continued hard work and dedication. Have a great day.

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Operator [43]

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And ladies and gentlemen, this concludes today's conference call. You may now disconnect.