Tessco Reports Second-Quarter 2020 Financial Results

Quarterly Revenues of $141.8 Million

Quarterly Dividend of $0.20 per Share Declared

HUNT VALLEY, Md.–(BUSINESS WIRE)–TESSCO TECHNOLOGIES INCORPORATED (NASDAQ: TESS) today reported financial results for its second quarter of fiscal 2020, ended September 29, 2019.

Second-Quarter Highlights:

  • Second-quarter revenue of $141.8 million
  • 9% sequential increase in revenues

 

Second Quarter

FY 2020

First Quarter

FY 2020

Second Quarter

FY 2019

Revenue

$141.8M

$130.7M

$158.6M

Earnings (loss) per diluted share

$0.00

$(0.29)

$0.14

EBITDA per diluted share *

$0.20

$(0.28)

$0.33

Operating margin

0.4%

(2.5)%

1.2%

* EBITDA per diluted share and EBITDA (on which EBITDA per diluted share is based) are Non-GAAP financial measures. Non-GAAP financial measures indicated by an asterisk (*) in the above chart of this press release are so indicated as a means to direct the reader to the discussion of Non-GAAP Information below and the reconciliation of Non-GAAP to GAAP results included as an exhibit to this press release.

Second-Quarter Revenue by Market:

 

Sequential

Q2 FY 2020 vs.

Q1 FY 2020

Year over Year

Q2 FY 2020 vs.

Q2 FY 2019

Commercial:

 

 

Public Carrier

17.0%

(1.3)%

VAR and Integrator

(1.1)%

(6.1)%

Total Commercial

5.0%

(4.3)%

Retail

19.1%

(24.1)%

Total

8.5%

(10.6)%

“Our second-quarter results improved sequentially over the first quarter, due to higher revenues in both our Public Carrier and Retail markets, while revenue was slightly down in our VAR and Integrator business,” said Sandip Mukerjee, President and Chief Executive Officer. “Sales improved sequentially in our Public Carrier market as we captured new wins with Tier 1 carriers and turf vendors.

“However, on a year-over-year basis, our Public Carrier business is down slightly as we continue to see some project delays, although to a lesser extent than in the first quarter,” Mukerjee continued. “We believe revenues in this market will improve as the year progresses. More significantly, our VAR and Integrator revenues are down 6% compared to a year ago. We are taking steps to improve performance in this market in the short-term. Finally, on a year-over-year basis, our Retail market continues to be challenging as we have previously disclosed.

“After 70 days at the helm of the Company, I am optimistic about Tessco’s opportunities going forward,” said Mukerjee. “We have strong relationships with our customer and supplier partners, we are increasingly utilizing our own innovation to help support our customers and solve their business challenges, and we have a talented and dedicated team.

“It is clear that we have work to do to accelerate our earnings growth. While I have only been here a short time, we have already begun to make important changes in our structure, designed to improve order processing, supply chain management and inventory optimization. We also have implemented a stronger discipline around building and managing our sales pipeline and driving customer intimacy. We are making important technology and process investments to enhance our competitive advantage and drive profitable growth. I have also undertaken a strategic study of the business to be completed by the end of our fiscal year, with the goal of ensuring that all of the Company’s assets and resources are being best utilized to enhance long-term shareholder value,” concluded Mukerjee.

Second-Quarter 2020 Financial Results

For the fiscal 2020 second quarter, revenues totaled $141.8 million, compared with $158.6 million for the second quarter of fiscal 2019. The decrease in revenue was driven by lower sales in Tessco’s VAR and Integrator and Retail businesses.

Gross profit was $26.3 million for the second quarter of fiscal 2020, compared with $31.4 million for the same quarter of fiscal 2019. Gross margin was 18.6% for the quarter, reflecting sales and product mix and the increased impact of tariffs. This compares with 19.8% in the second quarter of last year.

As a result of lower sales and the Company’s ongoing expense control initiatives and productivity enhancements, second-quarter selling, general and administrative (SG&A) expenses decreased 12.7% to $25.7 million from the prior-year quarter.

Net income was $0.0 million, or earnings per share of $0.00, for the second quarter of fiscal 2020. This compares with net income of $1.2 million and diluted earnings per share of $0.14, for the prior-year second quarter.

Business Outlook

In light of second quarter results and the difficulty in forecasting results for the fourth quarter, which is historically Tessco’s most difficult quarter to forecast, the Company now rescinds all previously given financial guidance. Accordingly, the Company no longer expects aggregate year-over-year revenue and earnings growth for the final nine months of the Company’s fiscal year, as outlined in last quarter’s Business Outlook. The Company does, however, expect positive earnings in the third quarter.

The Company’s expectations published in this press release reflect only the Company’s current best estimate and the Company assumes no obligation to update the information contained in this press release, including the Business Outlook, at any time.

Cash Dividend

The Board of Directors has declared a quarterly cash dividend of $0.20 per common share payable on November 27, 2019 to common shareholders of record on November 13, 2019. Any future declaration of dividends, and the establishment of record and payment dates, is subject to future determinations of the Board of Directors.

Second-Quarter Fiscal 2020 Conference Call

Management will host a conference call to discuss second-quarter fiscal year 2020 results and business outlook tomorrow, Thursday, October 31, 2019 at 8:30 a.m. ET. To participate in the conference call, please call 877-824-7042 (domestic call-in) or 647-689-6625 (international call-in) and reference code #1799449.

A live webcast of the conference call will be available on the Events & Presentations page of the Company’s website. All participants should call or access the website approximately 10 minutes before the conference begins. An archived version of the webcast will be available on the Company’s website for one year.

Non-GAAP Information

EBITDA and EBITDA per diluted share are measures used by management to evaluate the Company’s ongoing operations, and to provide a general indicator of the Company’s operating cash flow (in conjunction with a cash flow statement which also includes among other items, changes in working capital and the effect of non-cash charges). EBITDA is defined as income from operations, plus interest expense, net of interest income, provision for income taxes, and depreciation and amortization. EBITDA per diluted share is defined as EBITDA divided by Tessco’s diluted weighted average shares outstanding.

Management believes EBITDA and EBITDA per share are useful to investors because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies. Because not all companies use identical calculations, the Company’s presentation of these Non-GAAP measures may not be comparable to other similarly titled measures of other companies. Neither EBITDA nor EBITDA per diluted share is a recognized term under GAAP, and EBITDA does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, neither EBITDA nor EBITDA per diluted share is intended to be a measure of free cash flow for management’s discretionary use, as certain cash requirements, such as interest payments, tax payments and debt service requirements, are not reflected.

A reconciliation of Non-GAAP to GAAP results is included as an exhibit to this release.

About TESSCO Technologies Incorporated (NASDAQ: TESS)

TESSCO Technologies, Inc. (NASDAQ: TESS) is a value-added technology distributor, manufacturer, and solutions provider serving commercial and retail customers in the wireless infrastructure and mobile device accessories markets. The Company was founded more than 30 years ago with a commitment to deliver industry-leading products, knowledge, solutions, and customer service. Tessco supplies more than 50,000 products from 350 of the industry’s top manufacturers in mobile communications, Wi-Fi, Internet of Things (“IoT”), wireless backhaul, and more. Tessco is a single source for outstanding customer experience, expert knowledge, and complete end-to-end solutions for the wireless industry. For more information, visit www.tessco.com.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans and future prospects, and our expectations for future operations, are forward-looking statements. These forward-looking statements are based on current expectations and analysis, and actual results may differ materially from those projected. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “seeks,” “believes,” “estimates,” and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward-looking. These forward-looking statements are only predictions and involve a number of risks, uncertainties and assumptions, many of which are outside of our control. Our actual results may differ materially and adversely from those described in or contemplated by any such forward-looking statement for a variety of reasons, including those risks identified in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission (the “SEC”), under the heading “Risk Factors” and otherwise. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject. For additional information with respect to risks and other factors which could occur, see Tessco’s Annual Report on Form 10-K for the year ended March 31, 2019, including Part I, Item 1A, “Risk Factors” therein, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other securities filings with the SEC that are available at the SEC’s website at www.sec.gov and other securities regulators.

We are not able to identify or control all circumstances that could occur in the future that may materially and adversely affect our business and operating results. Without limiting the risks that we describe in our periodic reports and elsewhere, among the risks that could lead to a materially adverse impact on our business or operating results are the following: termination or non-renewal of limited duration agreements or arrangements with our vendors and affinity partners that are typically terminable by either party upon several months or otherwise relatively short notice; loss of significant customers or relationships, including affinity relationships; loss of customers either directly or indirectly as a result of consolidation among large wireless services carriers and others within the wireless communications industry; the strength of our customers’, vendors’ and affinity partners’ business; negative or adverse economic conditions, including those adversely affecting consumer confidence or consumer or business spending or otherwise adversely impacting our vendors or customers, including their access to capital or liquidity, or our customers’ demand for, or ability to fund or pay for, the purchase of our products and services; our dependence on a relatively small number of suppliers and vendors, which could hamper our ability to maintain appropriate inventory levels and meet customer demand; changes in customer and product mix that affect gross margin; effect of “conflict minerals” regulations on the supply and cost of certain of our products; failure of our information technology system or distribution system; system security or data protection breaches; technology changes in the wireless communications industry or technological failures, which could lead to significant inventory obsolescence and/or our inability to offer key products that our customers demand; third-party freight carrier interruption; increased competition from competitors, including manufacturers or national and regional distributors of the products we sell and the absence of significant barriers to entry which could result in pricing and other pressures on profitability and market share; our relative bargaining power and inability to negotiate favorable terms with our vendors and customers; our inability to access capital and obtain financing as and when needed; transitional and other risks associated with acquisitions of companies that we may undertake in an effort to expand our business; claims against us for breach of the intellectual property rights of third parties; product liability claims; our inability to protect certain intellectual property, including systems and technologies on which we rely; our inability to hire or retain for any reason our key professionals, management and staff; and the possibility that, for unforeseen or other reasons, we may be delayed in entering into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in realizing or fail to realize anticipated revenues or anticipated savings.

The above list should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to the risk factors described in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission (the “SEC”), under the heading “Risk Factors” and otherwise. Other risks may be described from time to time in our filings made under the securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Any forward-looking statement made by us in this press release speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this press release to confirm these statements to actual results or revised expectations.

TESSCO Technologies Incorporated

Consolidated Statements of Income (Unaudited)

 

Fiscal Quarters Ended

Six Months Ended

September 29, 2019

June 30, 2019

September 30, 2018

September 29, 2019

September 30, 2018

 

Revenues

$

141,810,900

$

130,729,300

$

158,636,100

$

272,540,200

$

309,555,500

Cost of goods sold

115,491,600

 

105,465,800

 

127,241,400

 

220,957,400

 

247,462,700

Gross profit

26,319,300

25,263,500

31,394,700

51,582,800

62,092,800

Selling, general and administrative expenses

25,745,200

28,096,500

29,477,300

53,841,700

58,438,600

Restructuring

 

 

 

 

488,000

 

 

 

 

488,000

 

 

Income (loss) from operations

 

574,100

 

(3,321,000)

 

1,917,400

 

(2,746,900)

 

3,654,200

Interest, net

 

335,100

 

208,700

 

244,800

 

543,800

 

419,200

Income (loss) before provision (benefit) for income taxes

239,000

(3,529,700)

1,672,600

(3,290,700)

3,235,000

Provision (benefit) for income taxes

 

217,000

 

(1,036,900)

 

481,800

 

(819,900)

 

885,800

Net income (loss)

$

22,000

$

(2,492,800)

$

1,190,800

$

(2,470,800)

$

2,349,200

 

Basic earnings (loss) per share

$

(0.00)

$

(0.29)

$

0.14

$

(0.29)

$

0.28

Diluted earnings (loss) per share

$

(0.00)

$

(0.29)

$

0.14

$

(0.29)

$

0.27

TESSCO Technologies Incorporated

Consolidated Balance Sheets

 

 

September 29,

 

March 31,

2019

2019

(unaudited)

(audited)

ASSETS

Current assets:

Cash and cash equivalents

$

108,200

$

30,300

Trade accounts receivable

 

91,624,500

 

93,966,200

Product inventory, net

 

84,144,200

 

71,845,400

Prepaid expenses and other current assets

 

9,081,600

 

5,562,800

Total current assets

 

184,958,500

 

171,404,700

 

Property and equipment, net

 

13,875,700

 

15,003,500

Goodwill, net

 

11,677,700

 

11,677,700

Deferred tax assets

 

 

55,300

 

 

55,300

Lease asset – right of use

 

 

13,718,000

 

 

Other long-term assets

 

9,661,800

 

8,354,600

Total assets

$

233,947,000

$

206,495,800

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Trade accounts payable

$

72,745,000

$

73,059,700

Payroll, benefits and taxes

 

3,876,000

 

5,929,500

Income and sales tax liabilities

 

261,700

 

749,000

Accrued expenses and other current liabilities

 

3,204,900

 

2,652,400

Revolving line of credit

 

35,279,500

 

14,378,100

Lease liability, current

 

2,486,100

 

Total current liabilities

 

117,853,200

 

96,768,700

 

Lease liability

 

11,393,800

 

Long-term liabilities

 

821,800

 

939,900

Total liabilities

 

130,068,800

 

97,708,600

 

Shareholders’ equity:

Preferred stock

 

 

Common stock

 

101,000

 

99,800

Additional paid-in capital

 

64,504,000

 

62,666,400

Treasury stock

 

(58,484,300)

 

(57,614,100)

Retained earnings

 

97,757,500

 

103,635,100

Total shareholders’ equity

 

103,878,200

 

108,787,200

Total liabilities and shareholders’ equity

$

233,947,000

$

206,495,800

TESSCO Technologies Incorporated

Reconciliation of Net Income to Earnings Before Interest, Taxes and Depreciation and Amortization (EBITDA)

(Unaudited)

 

Fiscal Quarters Ended

Six Months Ended

September 29, 2019

June 30, 2019

September 30, 2018

September 29, 2019

September 30, 2018

 

Net Income (loss) as reported

$

22,000

$

(2,492,800)

$

1,190,800

$

(2,470,800)

$

2,349,200

Add:

Provision for income taxes

217,000

(1,036,900)

481,800

(819,900)

885,800

Interest, net

335,100

208,700

244,800

543,800

419,200

Depreciation and amortization

 

1,113,800

 

960,800

 

900,900

 

2,074,600

 

1,838,000

EBITDA

$

1,687,900

$

(2,360,200)

$

2,818,300

$

(672,300)

$

5,492,200

Add:

Stock based compensation

391,800

338,900

384,800

730,700

705,300

EBITDA, adjusted

$

2,079,700

$

(2,021,300)

$

3,203,100

$

58,400

$

6,197,500

 

EBITDA per diluted share

$

0.20

$

(0.28)

$

0.33

$

(0.08)

$

0.64

Adjusted EBITDA per diluted share

$

0.24

$

(0.24)

$

0.37

$

0.01

$

0.72

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

 

Three Months Ended

September 29, 2019

Three Months Ended

September 30, 2018

Growth Rates Compared to

Prior Year Period

 

Market Revenues

Commercial

Retail

Total

Commercial

Retail

Total

Commercial

Retail

Total

Public Carrier

$

39,169

$

$

39,169

$

39,694

$

$

39,694

(1.3%)

(1.3%)

VAR and Integrator

64,482

64,482

68,650

68,650

(6.1%)

(6.1%)

Retail

 

 

38,160

 

38,160

 

 

50,292

 

50,292

(24.1%)

(24.1%)

Total revenues

$

103,651

$

38,160

$

141,811

$

108,344

$

50,292

$

158,636

(4.3%)

(24.1%)

(10.6%)

 

Market Gross Profit

Commercial

Retail

Total

Commercial

Retail

Total

Commercial

Retail

Total

Public Carrier

$

4,860

$

$

4,860

$

4,780

$

$

4,780

1.7%

1.7%

VAR and Integrator

15,324

15,324

16,912

16,912

(9.4%)

(9.4%)

Retail

 

 

6,135

 

6,135

 

 

9,703

 

9,703

(36.8%)

(36.8%)

Total gross profit

$

20,184

$

6,135

$

26,319

$

21,692

$

9,703

$

31,395

(7.0%)

(36.8%)

(16.2%)

% of revenues

19.5%

16.1%

18.6%

20.0%

19.3%

19.8%

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

 

Three Months Ended

September 29, 2019

Three Months Ended

September 30, 2018

Growth Rates Compared to

Prior Year Period

 

Product Revenues

 

Base Station Infrastructure

$

71,473

$

75,515

(5.4%)

 

Network Systems

22,855

22,564

1.3%

 

Installation, Test and Maintenance

7,240

8,891

(18.6%)

 

Mobile Device Accessories

40,243

51,666

(22.1%)

 

Total revenues

$

141,811

$

158,636

(10.6%)

 

 

 

 

Product Gross Profit

 

 

 

Base Station Infrastructure

$

14,565

$

15,534

(6.2%)

 

Network Systems

3,463

3,561

(2.8%)

 

Installation, Test and Maintenance

1,229

1,803

(31.8%)

 

Mobile Device Accessories

7,062

10,497

(32.7%)

 

Total gross profit

$

26,319

$

31,395

(16.2%)

 

% of revenues

18.6%

19.8%

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

 

Three Months Ended

September 29, 2019

Three Months Ended

June 30, 2019

Growth Rates Compared to

Prior Period

Market Revenues

Commercial

Retail

Total

Commercial

Retail

Total

Commercial

Retail

Total

Public Carrier

$

39,169

$

$

39,169

$

33,486

$

$

33,486

17.0%

17.0%

VAR and Integrator

64,482

64,482

65,194

65,194

(1.1%)

(1.1%)

Retail

 

 

38,160

 

38,160

 

 

32,049

 

32,049

19.1%

 

19.1%

Total revenues

$

103,651

$

38,160

$

141,811

$

98,680

$

32,049

$

130,729

5.0%

 

19.1%

 

8.5%

 

Market Gross Profit

Commercial

Retail

Total

Commercial

Retail

Total

Commercial

Retail

Total

Public Carrier

$

4,860

$

$

4,860

$

4,253

$

$

4,253

14.3%

14.3%

VAR and Integrator

15,324

15,324

15,969

15,969

(4.0%)

(4.0%)

Retail

 

 

6,135

 

6,135

 

 

5,042

 

5,042

21.7%

 

21.7%

Total gross profit

$

20,184

$

6,135

$

26,319

$

20,222

$

5,042

$

25,264

(0.2%)

21.7%

 

4.2%

% of revenues

19.5%

16.1%

18.6%

20.5%

15.7%

19.3%

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

 

Three Months Ended

September 29, 2019

Three Months Ended

June 30, 2019

Growth Rates Compared to

Prior Period

 

 

Product Revenues

 

Base Station Infrastructure

$

71,473

$

69,069

3.5%

 

Network Systems

22,855

22,552

1.3%

 

Installation, Test and Maintenance

7,240

6,025

20.2%

 

Mobile Device Accessories

40,243

33,083

21.6%

 

Total revenues

$

141,811

$

130,729

8.5%

 

 

 

Product Gross Profit

 

 

Base Station Infrastructure

$

14,565

$

14,521

0.3%

 

Network Systems

3,463

3,927

(11.8%)

 

Installation, Test and Maintenance

1,229

1,084

13.4%

 

Mobile Device Accessories

7,062

5,732

23.2%

 

Total gross profit

$

26,319

$

25,264

4.2%

 

% of revenues

18.6%

19.3%

 

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

 

Six Months Ended

September 29, 2019

Six Months Ended

September 30, 2018

Growth Rates Compared to

Prior Year Period

 

Market Revenues

Commercial

Retail

Total

Commercial

Retail

Total

Commercial

Retail

Total

Public Carrier

$

72,655

$

$

72,655

$

80,054

$

$

80,054

(9.2%)

(9.2%)

VAR and Integrator

129,676

129,676

134,197

134,197

(3.4%)

(3.4%)

Retail

 

 

70,209

 

70,209

 

 

95,304

 

95,304

(26.3%)

(26.3%)

Total revenues

$

202,331

$

70,209

$

272,540

$

214,251

$

95,304

$

309,555

(5.6%)

 

(26.3%)

 

(12.0%)

 

Market Gross Profit

Commercial

Retail

Total

Commercial

Retail

Total

Commercial

Retail

Total

Public Carrier

$

9,114

 

$

 

$

9,114

$

10,406

$

$

10,406

(12.4%)

(12.4%)

VAR and Integrator

31,293

 

 

 

 

31,293

32,829

32,829

(4.7%)

(4.7%)

Retail

 

 

 

11,176

 

 

11,176

 

18,858

18,858

(40.7%)

(40.7%)

Total gross profit

$

40,407

 

$

11,176

 

$

51,583

$

43,235

$

18,858

$

62,093

(6.5%)

 

(40.7%)

 

(16.9%)

% of revenues

20.0%

 

 

15.9%

 

 

18.9%

20.2%

19.8%

20.1%

 

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

 

Six Months Ended

September 29, 2019

Six Months Ended

September 30, 2018

Growth Rates Compared to

Prior Year Period

 

 

Product Revenues

 

Base Station Infrastructure

$

140,542

$

149,829

(6.2%)

 

Network Systems

45,407

45,341

0.1%

 

Installation, Test and Maintenance

13,265

16,322

(18.7%)

 

Mobile Device Accessories

73,326

98,063

(25.2%)

 

Total revenues

$

272,540

$

309,555

(12.0%)

 

 

 

 

 

Product Gross Profit

 

 

 

 

Base Station Infrastructure

$

29,086

$

31,250

(6.9%)

 

Network Systems

7,391

7,224

2.3%

 

Installation, Test and Maintenance

2,313

3,276

(29.4%)

 

Mobile Device Accessories

12,793

20,343

(37.1%)

 

Total gross profit

$

51,583

$

62,093

(16.9%)

 

% of revenues

18.9%

20.1%

Contacts

TESSCO Technologies Incorporated

Aric Spitulnik

Chief Financial Officer

410-229-1419

spitulnik@tessco.com

or

Jamie Bernard, IRC

Sharon Merrill Associates

617-542-5300

TESS@investorrelations.com

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