TESS - Earnings call transcript Q3 2018 | Tessco Technologies, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter of 2018 TESSCO Technologies Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. [Operator Instructions] And as a reminder, this call is being recorded.

Now I would like to turn the conference over to Mr. Mr. Calusdian. David Sir?

David Calusdian

and TESSCO's everyone, call. XXXX for thanks morning, QX joining conference Good

note today me TESSCO's anticipated Spitulnik, and Please Wright, are results the management's and CFO. Joining Murray Officer; and President future today statements contain will forward-looking Chief prospects. Executive Company's that about discussions Aric

the public and found that company's such discussed including and statements concerning the periodic today. disclosures, Forward-looking like uncertainties most Wright, factors a in recent Form a differ other may that of number results involve cause and turn difference Murray? Information Murray reports XX-K Securities the TESSCO's Exchange filed be can CEO. President call materially to TESSCO's introduction, with over to and could Commission. and risks TESSCO's from With those I'd

Murray Wright

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

on our profitability would this sales to sales carrier in strong be X% continued during We what quarter by other and a market commercial quarter our well Total experienced third slowdown. believe increased markets. we [ph] the government, system execute The private particularly quarter. was one and initiatives and

new direct proud terms trend of I'm is exciting The the carrier enhancements. our increases of opportunities operating extended this continued operating are in emerging to the we the ecosystem. we of considering recent leverage say very through year-over-year was growth. line In successful productivity improved bottom profitability, developing some a especially leverage result created we have potential in of for

making now provide foundation of with on it revenues us go XXXX. on will our success like of initiatives. better discussed are and the provide an helping to efficiency. we implementation Execution increase overall I'd our strategy is we balancing our market progress fiscal previous are calls, for we on this both and have key strategy profits the the operating in update to As And

this is for to customers. year. of regionalization our market sales major our recalibrating Having As our a sales closer to us the you our now go force, undertaking strategy know, completed are professionals

have is before. sales and reinvigorated engagement our ever than our customers Our teams been with higher

partner Next with our we how improving are we vendors.

we This with leading our collaboration working with ultimately are to similar vendors. and relationships new our as customers, together immersed in is process we selling better a uncover Just foster opportunities. to are we

a Third, initiative our under device several our products. e-commerce site made accessory in new for launched We improvements QX. and Ventev.com we mobile

with by a EDI initial We potential fiscal process expense This our have customer deployment with signed better facing leading balancing the our raise a in And retail talent putting people enabled next which customers headway right performance. customers, controls are month. for of commercial the we early retailers. sales end will TESSCO.com allow in initiatives efficiency now is we've and increasing this finally, growth year significant costs. TESSCO year. have management margins by goal our expense the Throughout of operating involves made company's Along the flowing line. jobs. new to focused it to but our bottom attracting means resources, on This successful the of also reallocation us right The in and on production the integration and with contract Analyst bars partner. new portion the industry an of in be services seamless our deployment will on website we for our especially customers track quarter for for our And this large more

commercial of XX product Tammy addition as market to we rely Marketing. Vice Product of was strategy she three experience executes Presidents. Commercial team. go Ridgley our for President Vice years week She last on the TESSCO within the announced to new Just will promoted of the

Vice partners. strategy his and a Marketing. extensive President management, And a and promoting Brenda Fortune then XXX be chief is of several component the in Jim wealth our our has Brenda President will brand. companies named was background in Markisohn our marketing, margin General for in and was Jim vendor industry. growth appointed product which with Vice Corporate finally, distribution Manager critical R&D, and an has TESSCO Budzynski and sales Next, engineering, telecommunications for proprietary of Ventev Ventev, experience in and

are these year, I work to X% we and a with and would brief greater retail this have commercial provide the is to organization revenue like down X%. With to well And lead moves overview believe our already quarter Overall the of team now, even markets. our this completed we positioned up down sales X% success.

this organization. inherent result making As year I fluctuations given expect have we of past, our number we in in the financial are changes the mentioned the throughout

opportunities. Solutions, largest in has than subsidiary turf comes XX% has contractors related configuration, expect services demand for very several just-in-time and dependent in carrier logistics, more approximately public a should to management, new that we announce this of that as term timing On Longer warehouse revenue market one site term. and MasTec and are has MasTec large the TESSCO of planning, executed been is to areas this wireless we variations to said, saw we optimized which yielding the That making LLC a the to are quarter contract carrier a business decline Network positive TESSCO order public date from are fluctuations we significant continue chose and $X on and multiyear wireline front in trend communications. in that obviously the and inventory That's expertise due delays. quarterly expect setting in year the go to of We with to wireless market a delivery. excited Additionally, as billion changes MasTec. strategy activity. sales the our very of near annual the our in experienced we continue. They carrier market

end begin from revenue recognizing QX. We partnership this the expect to toward of

strong a quarter. pipeline this significant carriers including which for have this will Tier market X We very in ship orders contractors and several

of steps be customers, of experiencing double and expect we undertaking and action several and Ventev market mitigate mix, up across the product Because on to At sequentially time increase digits these from compression services. relationships to these buying types year. plans prior pricing, are in revenues including quarter are space this margin fourth margin to expect continue the We same as compression markets all and this that we power the grow. in of the

local are that Our to at finally government for team growth extended have projects very will and a Government funding. receive strong recent the federal, its double profit sales growth been We New state, that year begin up as Year ago. from quarter optimistic been and we hold budgets were with a saw gross on released and have levels. the digits

our an in new the is In a market market win we slightly. reseller on expect to grew expand opportunity private significant within grew we quarters. system In sales profit region market in share this program. result momentum gross There year and sales forward potential a look a about are revenues recently launched X% the revenue to and building gross operator year the a while continue. to to both broadband opportunities still We each this initiative for and our progress future decreased ago. from As ago excited profit value-added from X% we

customers. Our market relationship with this strength in our these is

through the align in manufacturers enables at to forefront us efforts. the This our are around business TESSCO. of to helps and ensure We creation project flows turn opportunity which that

only due margin to the slightly. X% year-over-year, improvement, by was retail but sales market, to down profit Turning gross decreased

our traffic a hold for customers periods their Some consumers of as reduction on of seen phones have in longer to time. store

related sales from In of iPhone which new addition, of our orders in experience Apple impacted delays most TESSCO. customers accessories the receiving their from

and We Aisle expand trends. this our Endless service Dropship market retail programs in with on to give continue customers ways to capitalize new consumer systemic spending our integration to offering including

SX the of late launch We last results. is expected This be expect slightly quarter should our March. Samsung year's year-over-year phone to to new launch their ahead which timing fourth mid-to help in Galaxy

I Aric, Before points. call I few emphasize a key the hand want to over to

executing our First, our strategic plan efficiency. we on as implementation balance go strategy improved the of well market we operating with to are

we results. improved are delivering Second,

quarters our the year significant new year-over-year we we four reported April. fiscal we as show in net and move increases For in improvement into expect to past income

what years. time the our has believe weakest double-digit quarter, in revenue will growth seasonally and three Finally, first we the achieve for quarter historically in been we fourth

We the are eager come. the to for are results. Aric? financial And and over turn value discussion our quarters new call to now in I'll we success proposition confident Aric of in for a

Aric Spitulnik

and you, prior In the Thank good Murray the revenues year. totaled morning third X% down quarter everyone. $XXX from million

quarter the customer year-to-date However year-to-date mix X%. slightly including Ventev to third and sales margin are in quarter. declined changes product the for Gross due slower up the and

a said, as emphasis fiscal is Murray point move gross major improvement for 'XX. into us As we of margin

year our ongoing expense million of initiatives, $X.X result a declined a SG&A As expense ago. from control

the improved in from SG&A As XX.X% rose expenses, a the of result operating year a third a Largely operating revenue slightly XX.X% to revenue as ago. was of year-over-year. X% with quarter compared Operating margin X.X%. reduced of income X.X% percentage

Most million this For operating grow or new has year. this our tax $X.X or to $X.X is the quarter is operating We new or compared of our income tax continue rates in of which law effective per allows per quarter also to time. margin from share increased $X.XX to compared X.X%. benefit rate to quarter the blend believe million the reduction or Year-to-date year-over-year per net over increased companies X% will as provided the $X.X year margin $X.XX $X.XX their significantly. with third income last a year. dropped to share The million for to that in third year due law Net share. $X.XX the fiscal per million $X share rate

federal XX%. old based is Our and XX% for at annual nine three rate of rate months this year the on months

which are at liabilities net recorded are federal deferred rate. able benefit this quarter to our a take We tax now on the lower also

effective we going than to rates we these lower rate low normally historically forward one-time quarter's this is realize adjustments, due do reported. to significantly have While expect

of our fiscal to on we've in in this market. been sheet, Due and of position to timing capital year this during quarter orders activity support working part investing the growth balance our improved. carrier in in public capital the the working Moving

sequential decrease this and borrowings in a on credit. During quarter corresponding in inventory decreases accounts and our receivable of experienced line we

expect to of to we Looking QX we will a significant business. increase the Accordingly, the in do growth we believe carrier ahead line in in inventory the balance. credit support increases corresponding see anticipated

and XX. a share per have dividend to committed a XX February set remain date program of dividend we of the with payment $X.XX at record and our date Finally February

year. enthusiastic the fiscal close the we progress approach of about are We our as

We plan are executing on grow to fiscal profitability. our 'XX revenues and

the double-digit be call the open and calls. for quarter profitable. to additional we We to And on fourth updates operator progress year-over-year questions. on growth look we'll providing revenue future our forward currently that, For anticipate with

Operator

[Operator Doradla with Instructions] Yes Blair. sir. comes Our Anil from question first William

Your line is open.

Arjun Bhatia

giving maybe for Anil. to off by you've we come and you quarter guidance upside in fourth provided the Bhatia This that you say just the out Arjun is MasTec how guys. to in, much confidence Can lay is that just this double-digit Hi the QX if due of in you is year-over-year actually about what's can the talking deal? about start Can going the growth?

Aric Spitulnik

you in that late in the So some decline know QX we've that to said as shipped that of some the the due quarter carrier get of got we was won't orders quarter. got, in we

far do an but So the will pipeline significant in ones. ramp the for going up get necessarily real towards of as we start quarter, end a quarter. the carrier We number other uncertainty that a MasTec, anticipating bit of MasTec by but right how we've will of got now the of market carriers. that the some not pretty strong a some that's the end Not little and of the as there, quickly thing

year or last last the is phone Galaxy the of few is was. from potentially to change we it big other year's earlier think going days which do release a we The be than

just as then in small that markets expect get the you know growth speaking across you generally we'll markets from benefit know as some those other So the we well. And well.

together are in So quarter the for us this from a where is a here fourth situation lot coming well of [indiscernible]. things a

Arjun Bhatia

the into quarter? visibility So the going fourth some you pipeline have into already

Aric Spitulnik

than of have previous some being bigger the of we areas. Yes, earlier some by bit a in the little because placed of quarters orders is more some

Arjun Bhatia

that's the play due there order and at quarter, what Got so that's and that this to seems in like they mostly just that competitive due from into the Is slowdown saw that it's then to, came quarter causing be it other QX. public carrier timing slowdown? we in late come to going there might third that you said any mostly dynamics

Aric Spitulnik

to trying Yes, with been think they they've in I go FirstNet the getting need been times and AT&T they've sites. to going to working particular consolidate on

with So states normal is with of in. yes, Their end have I that together finalized work first that was to here opting at the put kind they now think year plan the been of all that the doing. their

to slow Whether they there So it's start going in they now quarter that starts that to it it's fairly may QX. so well probably QX. the increase will get another issues their weather us towards not, builds factor going, were in in for and be the us know here right play FirstNet you well if QX, hit end being but here certainly that of

that's down reason another were a here So in why things bit little QX.

Murray Wright

it's Arjun Murray.

to that. Just to add on

way this well project business. is a is the think little about think bit I to it's like

of ensure and trying you customers steady-state visibility predictable. implementations pipeline know in for and they rollouts adjustments are rollouts why we the with. support that spending very get much and to ahead the we're time to these not make a as our occur, That's So be it's to that in engaged going so our

Arjun Bhatia

it, Okay, you the stores, we makes side that do of slowdown Apple be? how insight fast, any you switch if that caused have over in the by got we, might delays sense. versus maybe what Can into traffic much the retail real is can to breakdown

Murray Wright

sure don’t providing good certainly I'd to But they the the past there more customers technology other capability, of of that merchandising implement know and many was the we one a looking that's changing and launch give customer Consumers more our product some can new significant for that the models. that services, factors out you I'm and just a also there to are business that's and a referenced you customers new in we're that. we've a say is And apple few then of think trying addressing we've And you business about, it we're access more are know answer with was we had new model. is retail our working by the purchase way direct, one. are you have pressure ideas. don’t side I think under know, to as to question,

all sluggish what So little more these we'd just expected in quarter to contribute the than a retail. things of being

Arjun Bhatia

you any color guys on box front are last in know you provide announced anything you got big stages, I but it. last, And that? win think update would any any Okay, more interest Are be seeing quarter those the retailers, at that on I the that if can great? SKUs, that, on

Murray Wright

we are really We're step-by-step well. Yes footprint progressing process continuing with but and it's selling try work the and quarter, past trying customer as but we material there. to that number today it's at to stage things the engaged this our increase to progressing there's of and of are step-by-step, from to spike no SKUs them expected are increase that this in

Arjun Bhatia

you year, in or coming that on expecting then to next and Got for it in it's rate low it, okay XX% in the one I around can is around are the the XX%, going range? XXs XX% one XXs, fiscal know now I stay this be right last if is, sneak mid tax to

Murray Wright

closer would Yeah, you I mid year permanent rate the XXs, some state to probably adjustment I low would will one-time probably issues has into rate down. to it's say the that also get in range has the number because be anticipate what know to the coming for but liabilities XX is XXs then it we remember for deferred the This forward. XX% probably the and of a that almost the tax go going but once should had federal in rates the mid XXs

for the rate. the So, just for not And includes of the quarters also lower three current first quarter. three impact there's months, this quarter's the parts whole few moving a current rate within

Arjun Bhatia

color Okay, from thanks that's me, for it the guys.

Murray Wright

Okay.

Operator

Thank you.

Our with comes Riley. next question B. from Mike Crawford

Our line open. is

Mike Crawford

the Murray, the front counteract of power measures taking on margin Thanks. your to partners? some of what buying the you're greater larger are

Murray Wright

accelerate really our significant us up saw and margins Yes, is government, were allow We're business business, VAR contributor that's get this know, margin growth a model large I and competitive POS, pretty you some offset business in working nicely to think lot you this though and the of in the quarter transactions business Mike. sure if a for that the is good with to are to us the reason model, leverage exciting highly business a our large that's about make of would Ventev because these that transactions. commercial you and as these question our this, out of we business.

out systems to a we're don't going I opportunities. pricing, And tools margin TESSCO and mix large, we as to have to some equal a got as these making our some of SG&A an there's at agreements. initiatives that well also to large around a corresponding activity of so, aggressive support large gross some play really is and so result, think be And winning changes flurry enhance of nicely. very initiatives here amount have our of of that lot these of to number a on in of We've

Mike Crawford

know carrier be term, Okay. inventory Thank with, annual turns turns? get near - do your increasing you and public what are going the you think then over I TESSCO to in but inventories seven can

Murray Wright

steps Well, past. got to that focused for some that's working the are right I with be done are we in able And we've a to little opportunity we've than what consultants that are on inventory that an and us take now. we help think turns determine different might some us in

there's we're ways to some we how to out recognize execute. other that and for report opportunities no to figure than there's news that, looking potentially So on there

Mike Crawford

which XXX, from at I that are just last project that to thanks be one that's X think consolidated Verizon, point? to going that Tier six carrier up to these of and relates customers too hard question and another things at what prospects down Okay, of one suppliers of, down call it's you're and your now so this

Murray Wright

bit this a lot the been there's that to of a latter six down on of as to impact that couple with some to our care too suppliers. of necessarily probably the bit And just and required XXX side, and a It's reduce take a not try start quarter to making little contract hard the didn't call. then to little where team of going I anticipate, well see but and that's we'll that that announced of working I some it's tell from get we very set Verizon into particular, you is because complexity Mike delays be we that would administration But think transition. quarters on year, the and through magnitude ago. our to that new win fiscal we of up

Mike Crawford

Okay, great thank you.

Murray Wright

thanks right, Mike. All

Operator

Thank question Dezellem [Operator Tieton. you. Bill with from comes Instructions] next Our

Your line is open.

Bill Dezellem

Group of questions.

how First win you or are and Murray, MasTec expand on the and implications your not that would all please? but specifically the you viewing quarter win MasTec term for and longer fourth of

Murray Wright

I so Sure, publicly to determining in with as need company. particularly AT&T. a currently RFP is mentioned call can and build working process that we're MasTec products out to how mean on we on the They're and traded there MasTec large very provide going a we an services and I how a won company and was they're the effect

move it quarter. right not us to that, certainly about but but like we're there's may It's any millions this able it still time that still, into year So next fourth this some deliver is may and in will multi-year as so pretty have to the certainly agreement or of to any tens dollars. and us be like impact definitely happen, time so excited of expect fiscal for a that's we we out. We'd - required some help this win set up contract now you fresh something pretty

Bill Dezellem

guess the if man a would you revenues fiscal were so, that And be to what betting from MasTec be in you would 'XX?

Murray Wright

I'm good betting man. Well, it's thing not a a

opportunity of get that's to much feel I work after to of this quarter really remains think to of dollars would a over just together would how set I unfold up. better for we've an see the an opportunity in going we, term millions on and I say things got from had though. think seen commenting that agreement tens I it be we've that to and quarter now the

Bill Dezellem

fair. That’s

it do, So what is multiyear. was apologies if That already [indiscernible]. of me millions to and you've agreement, the math XXs length mentioned of my for the

Murray Wright

Bill. know you but stay I've some know, I’m between trying I lines and got white in here, to

Bill Dezellem

Yes, problem, thank is no you. that

– may important opted many if me states FirstNet, which not what did ones in? did they not allow if I to in are shift if doing So to and not how opt they and they’re

Murray Wright

were certainly know of I end the though watching a was good year there question I deadlines, there you Yes the - was states the news At so that lot a and day and lot were to a XX very states everybody and but opted some to if this, or tracking don’t we that’s know try the towards of end and saying too. territories opt going meet in, and the Bill, out. were the of of

mission from finalized that’s the So perspective mean December. been with in I everybody of just and accomplished as end opting AT&Ts of

Bill Dezellem

Congratulations.

you for had of So your you the were if I let which is of to is mix may Verizon, reiterated it what me one, be, the how suppliers Xth business of mentioned, would perception shift going six to positioned forward, and please? one-sixth by the you’re of Verizon one regions with us help some understand other forms? or them think how of divided about is suppliers So each

Murray Wright

that still would than at I the to award XXX be the look to scenario hand X combat marketplace Yes, the to other X, much is, it going hand rather way in the have but ones. with think it’s I winners,

to from just now earlier so of that sure systems we and skews what up is all is out there on getting complicated set if make the imagine Verizon. right we’re a because parsing can so getting the regions to the in through midst have our in aligned up XXXXs ordering it’s that you it pretty are and be pretty and will set in And questions deal process go they’re the is that I had of the and some systems aligned, aligned is mentioned skews of big that

Bill Dezellem

ahead. Go

Murray Wright

much is I chances. was say, Yes there be like and X, I to no, as to to it X just be still work as there like to to done X so would going I our

that I is we performing that, our no them associated properly, well. revenue course are downside margin think very Bill but with - it from feedback done help received we’ve get all will of the I of able The or being there think the to setup come. is in

Bill Dezellem

Is today there cost are the end getting with associated that it capitalized? bearing that in P&L does or we up

Murray Wright

It’s team, this, hard team team more just business from work in a on it’s time turning the it, to that our sales in operations program do the on team have perspective, our the so management and labor know future. working our on you set for is working our to you order hard up is

Bill Dezellem

don’t and suppliers of venue questions more at share this one-sixth other Verizon as may that therefore are gaining administering the five first business? all some well are Okay. the please, your Couple not more with the on if fair you setup or you maybe are be feeling process of as you favor of handling all mind share burdens you and

Murray Wright

So of we’ve assumptions Verizon that very and I helping but think there lot there is the in there, is them. feedback well received that from we’re is performing - a

should we’re be team. go we that that work when And so That value now. really our capitalize on becomes performing and say, Bill at hard take positive feedback that’s well face we’re time I positioned into putting that to the for if it means it

Bill Dezellem

rather waiting and for phones in last that reduction iPhone you my waiting the Are holding so not are is, on to than simply a XX? launch were mentioned the their traffic. for your in last then longer, were last customers you and customers that of getting it’s had some they the fall seeing early XX question they just business, any really the that are Thank sense retail Right. you

Murray Wright

to I that’s XX so to But of X, a – longer, think pretty or but There don’t six to that quickly are of of extra but I the year lot the was I a there a could year. we to think whole be going talking it it’s phone after slightly came think about lot is of argue it. hard make time years, price a not small going an so $XXXX months piece two people a it’s was going them not from be, XX there.

starting other, waiting impact and hard significant how launches think the each will recent one two be many the given small people versus on that with say So the I most top on really see we’re to to right but there a way. were that it’s on that, of pretty

Bill Dezellem

Great, thank you both all for and questions. thank allowing the you

Murray Wright

Okay, thanks Bill.

Operator

you. questions in showing queue. no I’m Thank further

So to conference I'd like to back turn over remarks. for Mr. closing Wright the

Murray Wright

thank and great look to support you your We appreciate you. call thanks in speaking next us. everyone for May. joining to Great, And our TESSCO we earnings on of a forward with again day. Have

Operator

Thank Ladies that today's conference. you and for participation. conclude very gentlemen you. your Thank much does

You may all disconnect. Have a wonderful day.

Tessco (TESS) 24 Jan 182018 Q3 Earnings call transcript