TESSCO Technologies Incorporated
Q4 2020 Earnings Call Transcript

Published: 13 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 TESSCO Technologies, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instruction]I would now like to hand the conference over to your speaker today, David Calusdian from Sharon Merrill. Thank you. Please go ahead.

[David Calusdian:]

Good morning, everyone, and thank you for joining TESSCO’s Q4 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.

[Sandip Mukerjee:]

Thank you, David. Good morning, everyone, and thank you all for joining us.On behalf of all of us at TESSCO, I want to send our well wishes to all of you during this challenging time. We hope that you and your families are healthy and safe.Since the beginning of this pandemic, our number one priority has been the health and safety of our employees, our customers, and our suppliers. We’re also keenly focused on the integrity of our operations, the continued delivery of our products and services, the sustainability of our supply chain, our liquidity and financial flexibility.TESSCO is an essential business as defined by the Department of Homeland Security, and remains open to serve our customers and provide support to our nation’s communications infrastructure needs, by providing critical equipment and vital services to fill the urgent needs of telecom companies, service providers, emergency responders, law enforcement, defense and security personnel as well as thousands of private entities that support these groups throughout our nation.In addition, several of our customers have asked us to support them in providing PPE gear for their crews and their employees. We are utilizing our supply chain resources to source masks and sanitizers, gloves, goggles and disinfectant wipes. We have received the first shipment of this gear in mid-April and began shipping it immediately to our customers. We are very proud to be playing a role in the recovery process during this pandemic.Most of our non-operations workforce are performing their duties remotely, and the transition to remote work has been seamless. TESSCO’s distribution centers remain open and we have taken measures in accordance with government and public health requirements to reduce risks for our team members who need to be physically present in our facilities.I will now provide more details on the effects of COVID-19 on our results in Q4 and our expectations as to how the pandemic may impact each of our businesses going forward. Let me start with our Retail segment.The primary impact of COVID-19 has been on our Retail segment, which has been already down throughout fiscal 2020. In Q4, we saw a significant COVID-19 impact on sales and margins due to temporary closures of many retail customer locations and substantially reduced foot traffic in other retail stores as a result of the shelter-in-place directives.Although most of the Tier 1 carriers’ corporate scores have been temporarily closed due to COVID-19, our retail customer base is predominantly comprised of independent carrier stores. And we continue to receive purchases from some of these independent dealers. This is particularly occurring in the Midwest and areas that are not as densely populated.On past calls we have discussed our efforts in the airport retail channel. This business was abruptly halted by COVID-19 with airport traffic down significantly. Some airport retail stores have been temporarily closed due to slower foot traffic. We expect continued uncertainty as to when retail stores will written to pre-pandemic purchasing levels. As a result, we have increased our accounts receivable, returns and inventory reserves.To best manage the business in this environment, we are taking the following aggressive actions. Number one, we have reduced our fulfillment and delivery expenses by consolidating orders as much as possible. Our distribution center staffing is down significantly as we are using our flex workforce to limit expense. Number two, we have further tightened our inventory management discipline and are being very-conservative in our purchasing. We are ensuring that we have a strong level of inventory on hand for our core SKU offerings and eliminating slower and lower performing SKUs. And number three, we have reduced our retail SG&A expenses, in part through temporary furloughs of our workforce, while still maintaining our ability to respond to our customer and our suppliers’ needs. We are keenly focused on serving our customers and performing for our suppliers during these unprecedented times. Our fiscal year 2021 investments will largely favor our better performing Commercial business.Let me now turn to our Commercial segment, beginning with our VAR and Integrator business. Our VAR revenue was down slightly year-over-year with COVID-19 having a modest effect on our results. The COVID impact relates primarily to non-essential projects being delayed. For example, one of our largest national service provider customers has postponed nearly 800 non-essential projects. We’ve also heard from customers that while they continue to get inquiries about large venue installations, they do not have the staff to visit the project sites in person for deployment and for implementation. Projects like these are likely to remain on hold until the effects of the pandemic are significantly reduced.In addition, projects for oil and gas industries are also likely to remain down throughout fiscal year 2021.At the same time, during the pandemic, we have seen growth in projects related to food transportation, healthcare, e-learning and solutions to enhance remote work. Additionally, we have supported the surge in hospital capacity needs, providing a rapid deployment kit that consists of Ventev enclosures with an antenna and a tripod mount, this solution allows for quick and easy installation in makeshift environments and enables hospitals to extend their Wi-Fi coverage.As I’ve shared on previous calls, we’ve taken actions to improve the performance of our VAR and Integrator business over the long term. First and foremost, we are re engaging with the end user community and reestablishing our relevance on a sector by sector basis.The first sector we focused on was utilities. We have invested in top sales and engineering talent, who have a deep understanding of the utility sector. And that has resulted in TESSCO being included in several new projects. We have now seen two consecutive quarters of year-over-year growth in the sector. Building upon our success with utilities, we have hired additional sales talent with specific experience working with the federal government and with large government integrators. We are encouraged that we have already built a strong pipeline in the sector.On our last call, I discussed that one of our growth strategies was to focus on our Ventev Infrastructure business. During Q4, we continued to be successful with Ventev Infrastructure products being included in projects installed by our VAR customers. I previously mentioned that we had won an award to provide Ventev enclosures with an integrated antenna for one of the largest paper manufacturers in the U.S. with over 170 warehouses. In Q4, we provided products for the second phase of this three-phased project.We also continued with the second phase of a rollout for one of the largest grocery store chains in the U.S. We are supplying a custom Ventev antenna that will be placed in all stores’ freezers. We expect this project to be completed in the third quarter of fiscal 2021.Our partnership with two of the world’s largest theme parks also remains strong. One of these theme parks will be working with us on a custom design for mounting brackets. We are adapting our quick access Ventev steaming bracket for small form factor antennas, for a new attraction. We expect these solutions will also have strong demand from other customers.We recently signed two key OEM agreements. The first was with Cisco, where we will embed their gear into our enclosures and VAR systems, and then focus on selling this full solution to VARs and end users. This program offers Ventev the resources needed to accelerate product development, increase speed to market and deliver value with an enhanced product offering integrated with Cisco’s quality and reliable IoT products. This will help our customers determine the right products for their deployments, develop integrated solutions that address their needs and deliver a connected IoT-enabled solution very quickly. Through this program, Ventev can offer our customers a turnkey solution, including accessories, software and services.The second OEM agreement is with Rajant where we are manufacturing a ruggedized enclosure for harsh environments, such as mining, and oil and gas applications. This agreement enables us to embed Rajant active equipment into a Ventev enclosure that can be sold as a turnkey solution.Looking ahead for fiscal year 2021, we will continue to focus on public safety DAS, Wi-Fi 6, and the utilities and federal government sectors. We’re taking strategic actions to adapt our regionalization strategy to be far more surgical and create more intimate coverage with our customers.Let me now talk about our Carrier segment. We did not see any significant impact from COVID-19 on the Public Carrier market in Q4. And we do not expect a major impact in fiscal 2021. In fact, Q4 was the largest revenue quarter for the Public Carrier market in our Company’s history. Our strong relationships and increasing market share with both AT&T turf contractors, as well as with Verizon and its contractors were the primary reasons for this record quarter.Additionally, we did not see any supply chain delays with equipment or crew shortages in Q4, and neither appeared to be issues in the construction projects ahead of us. As I mentioned last quarter, we recently won an award with a large tower company that will effectively double our business with them. We followed that win in Q4 with awards for enhanced roles with some of the largest turf contractors. Among the key reasons these customers cited for awarding us more business is the demand-planning capabilities we provide that differentiates TESSCO from our competitors.As further evidence of our strong relationships in this market, we have received information from some of our largest customers that they are prioritizing TESSCO for payment, and will be dramatically improving their payment terms to us.On past calls, we have discussed the opportunity that we see for TESSCO from the 5G build-out. I’d like to note that the strong spend that we are seeing in the carrier market today is not predominantly 5G. Rather, it is related to our customers, shoring up networks, enhancing the capacity and speed of rural networks and interspersing 4.5G with small cell build outs and testing to ensure that there are no coverage gaps. Our customers have told us that they are still refining their 5G building materials and that the ramp in spend will not happen until late calendar 2020 or early 2021. Even without significant near-term 5G spend, we expect continued strong growth in the sector in the coming quarters and then additional growth, resulting from 5G in calendar year 2021. Note that this growth comes at lower margins. So, we expect to see some margin erosion in this segment.To summarize, while we are disappointed by our overall results due to a weak Retail market that was significantly affected by the pandemic, we can think a lot of positives out of the quarter. We achieved record results for our Carrier business, saw continued positive momentum in our Ventev Infrastructure business and very good traction in the VAR and Integrator market. We’ve also made steady progress with each of the initiatives I outlined last quarter to improve TESSCO’s performance for the long term including improvements to our balance sheet.I’ll come back to discuss that progress as well as update you on the steps we have taken through our long-term vision after Aric reviews our financial results for this quarter. Aric?

[Aric Spitulnik:]

Thank you, Sandip. And good morning, everyone.As Sandip shared, we did have some nice positives in the quarter, primarily in the Public Carrier market. They were overshadowed by two large charges and the weak Retail market that was significantly impacted by the COVID-19 pandemic.Starting with the top line. Revenues total $128.2 million, compared with $145 million in the fourth quarter of fiscal 2019, and $139.6 million in the sequential third quarter. Gross profit for the quarter was $17.2 million compared with $28.3 million for the same quarter of fiscal 2019. Gross margin was 13.4% of revenue for the fourth quarter compared with 19.5% in the fourth quarter of last year.The decline in gross profit and gross margin are a result of several items. First, Retail sales were down 43%, primarily a result of Retail store closures and lower foot traffic due to COVID-19. The resulting gross margin associated with these sales was also down due to customer mix and additional returns. Second, we recorded an incremental $4.7 million of inventory and returns reserves related to the uncertainty caused by COVID-19, which is primarily a function of the retail markets. Finally, the Public Carrier market represents a larger percentage of overall sales this quarter as we continue to grow market share in the sector, but it does come at lower than historical margins.SG&A expenses were essentially flat year-over-year as our ongoing expense control initiatives and productivity enhancements were partially offset by higher COVID-19-related accounts receivable reserves of about $1.5 million. In the fourth quarter of fiscal 2020, the loss before income taxes was $19.6 million compared with earnings before income tax of $0.8 million a year ago. This fourth quarter loss includes a goodwill impairment charge of $9.1 million. It also includes $6.1 million in incremental reserves associated with the COVID-19 pandemic.Despite the difficult fourth quarter, we continue to maintain a healthy balance sheet. We ended the year with a balance on our line of credit of $26 million, down from $29 million at the end of the third quarter. While we expect some timing-related ebbs and flows on our balance sheet in this new fiscal year, we expect to bring down the levels of inventory and accounts receivable associated with our Retail segment. Additionally, certain provisions of the CARES Act will allow us to realize close to a $5 million tax refund in fiscal 2021.As we noted in our release, our Board of Directors made the decision to suspend TESSCO’s dividend to further strengthen the Company’s cash position as we continue to monitor and address the effects of the COVID-19 pandemic.As Sandip will describe momentarily, in the Commercial segment, we are well-positioned in our industry, and we look forward to further enhancing our offer, and the value and experiences we provide our customers.As we enter fiscal 2021, we continue to focus on taking actions to improve profitability over the long-term.I’ll now turn this back to Sandip to discuss our strategies that drive TESSCO’s growth plans. Sandip?

[Sandip Mukerjee:]

Thanks, Aric.Over the past two quarters, I’ve discussed our near-term business initiatives that are focused on enhancing our customer experience, improving our sales discipline, upgrading our forecasting and inventory management capabilities, and advancing our e-commerce websites.We have continued to make progress on each of these initiatives through the use of tools and software to assist in efficient and accurate order processing, improved pipeline visibility, and are now able to quickly evaluate and resolve issues. The enhancements we have made to our website have also been very well received by both our internal teams and our customers. This has resulted in increased activity and positive results in terms of users, sessions, and organic searches.As a result of these near-term actions, we have expanded existing relationships with several of our customers. In each case, TESSCO has been able to provide a reliable supply chain and lower total cost of operations and savings. This has resulted in our customers’ ability to reduce their spend by optimizing inventory and having better management of their demand planning processes. A wide array of industry-leading supply chain services has been implemented by TESSCO’s program management team. And our customers describe these as being best it in class. We’re very proud of these results.As we execute on these near-term initiatives, we’re also focused on the future, specifically, the three strategic pillars I outlined on last quarter’s call. Number one, retaining our competitive advantage in the core distribution business; number two, industrializing our Ventev operations; and number three, investing in value added and managed services offerings.We are very excited to announce two executive hires that are important to the execution of these three pillars. First, we appointed Eddie Franklin as our SVP of Sales. Eddie joins us from SYNNEX Corporation, where he served in a number of executive sales, leadership positions, most recently, leading teams responsible for driving multibillion dollar public sector and regulated industries business. I’m confident that Eddie will help further define our sales strategy and drive increasing revenue, productivity and profitability.We also appointed Thad Lowe, as our VP and General Manager of Ventev. Prior to joining Ventev, Pat was the head of small sales solutions and development for the Americas at Airspan Networks. Right to Airspan, Pat spent 16 years at Samsung Electronics. Pat’s proven track record will Ventev to capitalize on new technology opportunities and create unique and innovative solutions for our customers.We continue to move forward with building our software and managed services offerings, more to come on that in future quarters.Despite the challenges of COVID-19 and our performance in the Retail segment, I remain convinced that TESSCO is uniquely positioned to capitalize on the growth, leverage the technology changes and help simplify the complexity that continues to drive our industry. As we enter fiscal 2021, our focus is on taking actions to improve profitability over the long term. The COVID-19 pandemic currently makes forecasting results for fiscal 2021 very difficult. However, we are optimistic that we will grow our Carrier market business in fiscal 2021, that our business fundamentals will get stronger as the year progresses, and that we will be in a much better position to return to profitability as we enter fiscal 2022.Aric and I would be happy to take your questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Maggie Nolan from William Blair. Your line is open morning.

[Maggie Nolan:]

Good morning. I’m hoping you can elaborate a little bit on how the product and solution offerings have resonated with the VAR and Integrators in this environment. If there are any kind of long-term strategic changes that need to be taken? And, how TESSCO can really differentiate the business in this environment?

[Sandip Mukerjee:]

Good morning, Maggie. This is Sandip. Thanks for the question. We’re excited about a number of things in our VAR and Integrator business, many of which we saw evidence of this quarter. So, first and foremost, the effectiveness of our regionalization strategy and adapting that to, as we have discussed in prior quarters, that is beginning to bear fruit. Second, we have much more intimate relationship between our sales support structure, our sales, and our customers. So, we get a better understanding of their actual needs. So, from a fundamentals perspective, I’m happy with the progress we have made.And out of that exercise, I mean the following opportunities have come through. So, first, I’ll talk about Ventev. As I described during the call, there is a number of customizations, both environmental and aesthetic that our customers are looking for, that we are able to provide from a Ventev perspective. There is number of projects we are already executing and more in the pipeline that we will talk about in coming quarters.Second, we’ve seen a lot of progress with IoT, not just at an academic level, but very purposed to environment, oil and natural gas, mining, several other verticals that have unique requirements. And we are pretty excited with the partnerships we talked about during the call with Cisco and with Rajant that’ll help us address these opportunities and bring a total solution to the market. I hope that helps, Maggie, answer your question.

[Maggie Nolan:]

It does. Thank you. And as we think about the Carrier market, do you think that 5G gets pushed out further than kind of the expectations you’ve even laid out, just given perhaps the heavier spending that you’ve seen, of late, out of the Carrier market?

[Sandip Mukerjee:]

We still believe that timing for pickup of intensity is later this calendar year into early 2021 calendar. We’re seeing evidence of some spend. Roughly 10% to 15% of our existing revenues come from 5G. So, it’s not that it’s completely absent. We see evidence of that build-out. But from a real intensity perspective, it’s towards the end of the year -- calendar year that is.

[Maggie Nolan:]

Got it. On the supply chain, it doesn’t sound like you’ve seen any supply constraints yet. Are you preparing for a scenario in which you do see some? Do you anticipate that those are coming in the future? And, how are you managing that and managing inventory as well?

[Sandip Mukerjee:]

So, obviously, we are keeping a very close eye and a tight rein on this. We have established regular QBRs and deep dives that go all the way through the supply chain, both from a supplier perspective as well as from a customer perspective. So, we have routine QBRs to understand how our customers are forecasting, and how and why they’re putting those forecasts in place, and then use that to play back into our supply chains and our suppliers to ensure business continuity.So, I’m not concerned. I’m speaking more of a Commercial business. Retail is kind of in a different situation. From our Commercial business perspective, I’m comfortable with the supply chain situation as it exists today. Obviously, there’s a lot of uncertainty with the pandemic. And in order to manage, understand mitigate, we have established these routine QBRs that I just mentioned.

[Operator:]

And our next question comes from the line of Tim Call from Capital Management Corporation. Your line is open.

[Tim Call:]

With the public carriers improving their payment terms to you, what do they get in return?

[Aric Spitulnik:]

Really, they’re doing that as good partners of TESSCO. There isn’t quid pro quo or anything like that. It’s just that they’re keeping us is first in mind and want to make sure that we’re assisting them and their needs, but there’s nothing that -- we’re not giving them better pricing or anything like that. It’s just part of that arrangement.

[Tim Call:]

So, they’re just recognizing your importance to them?

[Aric Spitulnik:]

That’s right.

[Tim Call:]

Public Carrier business can be volatile and with 5G not accelerating in deployment till the end of the year, how -- what are the reasons, why you’re optimistic that the Public Carrier revenue for you will continue to grow during this year?

[Sandip Mukerjee:]

Good morning, Tim. This is Sandip. I’ll take that one and ask Aric to fill in anything that he wants to. So, from a -- we’re optimistic about a volume perspective, in this business segment going forward. Volume can come in two aspects. One is increased spend, which is the 5G aspect that you mentioned. The second is by improving our market share. Now, what we have been doing is very evidently -- and I’m actually very happy with the progress in this segment. We have one new contract, we have new agreements in place and we have improved our market share. So, we will get, we expect a bigger share of existing spend and we anticipate that with work and with all of the other improvements that I discussed during the call, we will be able to maintain that market share and hopefully grow. Aric, anything you want to add to that?

[Aric Spitulnik:]

No, I think you covered the key pieces there.

[Sandip Mukerjee:]

Tim, does that address your question?

[Tim Call:]

Yes. Thank you.

[Operator:]

Our next question comes from the line of Bill Dezellem from Tieton Capital. Your line is open.

[Bill Dezellem:]

Thank you. Can I start with the $6.1 million charge? What was the split between SG&A and your COGS.

[Aric Spitulnik:]

Yes. About $1.5 million of that is SG&A related to AR, and $4.6 million or so is related to inventory, which is COGS.

[Bill Dezellem:]

Okay. 1.5 and 1.6?

[Aric Spitulnik:]

4.6.

[Bill Dezellem:]

That adds a lot better to 6.1. Thank you.

[Aric Spitulnik:]

Yes…

[Bill Dezellem:]

I thought it was a trick answer. So, let me ask from a big picture perspective. How well is the wireless network holding up or performing during this period where we’re also distributed, and I would suspect using the bandwidth more than we historically have?

[Sandip Mukerjee:]

Bill, good morning. I’m trying to think what perspective we use to answer your question. I mean, the best I can do is to share with you examples and evidence of what our customers are doing. And our customers are primarily constructing these networks. The intensity of that I think you see in our results that we participate in. So, you can perhaps take from that that the efforts from the service providers to keep shoring up networks to make sure things are available, shifting capacity from highway coverage to rural areas, increasing coverage and capacity and where people are. I mean, that is certainly picking along. Right? So, that is one evidence we can give you.Second, from an innovation perspective, to get capacity and coverage in areas where people are, we see a lot of evidence around environment-specific antennas, aesthetics-driven antennas, we provide better in-building small cell coverage. We see evidence of that. So, from a construction perspective, yes, we’re very encouraged and we see evidence that all systems are moving along.From -- your question was quality of coverage, how well the systems are holding up? That is really not an analog we track with our tower business. And I’d be addressing that more from -- as an observer, I refrain from doing that. But, I can elaborate if you have more questions from our lens that we bring to this part of the business.

[Bill Dezellem:]

Sandip, I was thinking that just given that your -- that you do have a little more of a lens into this than the rest of us. Because we likely are only experiencing what our small radius that we would operate in, geographically is experiencing. So, I guess if you had some qualitative comments, just what you’re hearing, do you sense that there is -- that there are bottlenecks that that are needing to be worked out and that’s part of the activity that you’re experiencing today, or is the fact that 5G is being not accelerated, indicate to us that the networks tend to be performing pretty well and not in need, immediately accelerating or expanding that bandwidth?

[Sandip Mukerjee:]

Bill, I can try to give you based on the evidence we are seeing and what we are hearing from our customers. One point that you might be able to elaborate and make conclusion from is that we hear from our customers that end users, given that they’re not as mobile and working from home, and a large part of the workforce has shifted to shelter-in-place that the Wi-Fi networks are being utilized more and more. And so, there’s more intensity in terms of backhaul, in terms of wired backhaul to provide the capacity that is needed. And this has perhaps been a shift from traditionally mobile utilization. This has allowed our customers to shift their spend into areas where mobile coverage is needed. And we primarily have a wireless lens. So hopefully that is helpful.The second thing we have seen is for large venues and large convention centers, which have been converted to makeshift hospitals or are being used for other purposes. A lot of the wireless construction projects there have been put on hold. Now, these are not projects from our perspective that have gone away. These are simply delays. So, that’s another dynamic that we have seen during this pandemic. Beyond that, I have to go to the VAR and Integrator segment. In oil and gas, there has been a small. But, in most of the other verticals, the construction intensity has not waned.

[Bill Dezellem:]

Thank you, Sandip. And then, would you please discuss your comments as you continue to win share in the in the carrier market? And I know you did give the one specific example with a major tower company that you’re doubling your business with them. Are there other anecdotes or specifics that you can share relative to this?

[Sandip Mukerjee:]

Yes. I will draw your attention, Bill, to the comments I made on the AT&T and AT&T turf vendors. We have improved our market share in two ways. We have increased market share with some turf vendors, and we have established agreements with new ones. I’m not able to share the specific names with you, given the confidentiality of these arrangements, but that’s one place we have expanded.The second place we have expanded is also with Verizon and their contractors, where we have also won new agreements that I’m not able to share names with. But that has given us an uplift on our business. And then, finally, from a tower mutual host perspective, you have -- I cited one example without sharing names for the same reason, but we are increasing our intimacy and our share with other manufacturers as well, other tower companies as well.

[Bill Dezellem:]

What’s the magnitude of the impact that you would anticipate from these Carrier wins and their contractor wins?

[Sandip Mukerjee:]

So, this quarter was a record quarter for us. We expect to be able to continue this intensity, Bill, absent any significant or surprising issues from COVID-19, crew shortages, other things that have sometimes held this market back. And I’m not addressing those now. If all of those situations were to remain the way it is, I expect double-digit growth in the Carrier segment for us.

[Bill Dezellem:]

Great. Thank you. And if I may switch to the VAR business, and actually, I’ll even ask a Retail, so to address the question for both of them independently. We have heard of a number of companies that have talked about a bottoming of their activity in the April timeframe, and then growing from there. What have you experienced with Retail and the VAR business? Have you seen them bottom? And if so, at what point did you see each of them bottom, and how strong is the uptick from the low point?

[Sandip Mukerjee:]

So, these are somewhat different markets, Bill. If it’s okay, I’ll address them separately?

[Bill Dezellem:]

Please do.

[Sandip Mukerjee:]

I’ll tackle Retail first. Thank you. So, I will tackle Retail first. So, retail was not just a -- I mean everybody talks about a March phenomenon with the shelter-in-place directives that significantly slowed foot traffic down. The Retail experience goes back to January for us. If you remember at that point in time, the U.S. economy was still picking and Retail was normal, if you will. However, the supply chains were affected because of the pandemic in China. So, there was an effort from our customers, ourselves to ensure business continuity, inventory continuity. So, that was a January dynamic.Now, fast forward to March, when a lot of the U.S. was beginning to get affected. At that point, demand began to dry out. We see that continuing -- that continued through April. We are seeing some evidence of uptick, right? Very minimal though. Nothing I can say that used to say, we are out of it or we are going to be out of it. Have we seen bottom? That was your question. The honest answer is, we don’t know. Right? Which is why as Aric described during his narrative, we have been extremely cautious within reason and taken the reserves that we have. So, that’s the Retail environment as it exists today.From a VAR and Integrator perspective, there, the spend, Bill, is driven by various industry verticals. We talked about oil and gas. That is not related to the pandemic as other dynamics playing a role in the market, and we are seeing a slowdown. We expect that slowdown to continue for a while.Beyond that, in federal government, in utilities, we really don’t see significant downturn. What we do see is aspects of projects getting impacted. I talked about the large venues. This is not necessarily for VAR and Integrator, but take the Javits Center for instance. We had projects that were lined up there and we were supplying inventory and assets. As the Javits Center was repurposed to help with makeshift hospitals and other healthcare activities, those projects were put on hold. We see that phenomenon in venues, large stadiums across the board. We don’t believe these projects go away. We believe these projects were put on hold, and they eventually come back. I hope that helps you, Bill.

[Bill Dezellem:]

Thanks, Sandip. I appreciate it.

[Operator:]

We have no further questions in queue. At this time, I will turn the call back over to management for closing remarks.

[Sandip Mukerjee:]

Thank you. Thank you, operator.I want to make four quick points in closing. First and foremost, I want to thank the TESSCO team for their attention, for their care, for their dedication as we transition from a robust office environment into a remote work arrangement. That transition, as I said earlier, has been seamless. And I’m especially grateful to the enthusiasm and to the lean forwardness of our whole. I want to especially thank our distribution center colleagues. These are teams and people, who had to brave the pandemic and be on-premise at our distribution centers. I want to thank them for their efforts towards business continuity. And I know that our customers and our suppliers share those thanks as well.Second, I want to thank our customers and our supplier partners, for especially this end-to-end planning that we received a question on having visibility into demand, into projects, and then being able to playback the same into our supply chain, the openness and partnership and trust that we have seen across the board has been remarkable. And I want to thank our customers and our supplier partners for doing so and for your trust and your confidence in TESSCO.Finally, I want to thank all of you for joining us on this call. Please stay healthy, please stay safe. And I look forward to speaking with all of you next quarter. Thank you.

[Operator:]

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