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TESSCO Reports First Quarter Fiscal Year 2015 Earnings

TESSCO (NASDAQ: TESS), Your Total Source® for the product and value chain solutions to build, use and resell wireless systems, today reported its first quarter results for the period ended June 29, 2014.

Financial Highlights

      First Quarter 2015     First Quarter 2014
Revenue     $152.9M     $144.1M
Diluted EPS     $0.44     $0.51
EBITDA* per share     $0.86     $0.98
Operating margin     4.0%     4.8%
Cash from operations     ($2.8M)     ($10.4M)
Cash balance     $6.2M     $0.4M
       

Market Highlights for Revenue over First Quarter of Fiscal Year 2014:

  • Public carriers, contractors & program managers increased 11%
  • Private and government system operators grew 4%
  • Commercial dealers & resellers increased 6%
  • Retailer, independent dealer agents & carriers were up 3%

“I am pleased that we began our new fiscal year in line with our expectations, delivering revenue growth of 23% sequentially and 6% year over year, including growth in each of our markets. Our transformation strategy and financial foundation are strong. We are well positioned to leverage the opportunities we are seeing as the result of the convergence of wireless and the Internet, by assisting customers to build, use and maintain the new wireless voice, data and video systems,” said Robert Barnhill, TESSCO Chairman and CEO.

“Our strategic initiatives promise to transform the way we deliver value to our customers, enhance the ways we go to market and drive operational productivity. The execution of these initiatives requires prudent investment in talent and technology and as a result, revenue growth may outpace earnings in the short term. However, as our initiatives continue to take hold, we expect to see accelerated revenue growth, and operational productivity, all resulting in bottom line growth.

“Our entire team is intensely focused on aggressive growth in the value we deliver to our customers and our shareowners,” Barnhill concluded.

First-Quarter Fiscal 2015 Financial Results

For the fiscal 2015 first quarter, revenues totaled $152.9 million compared with $144.1 million in the first quarter of the prior year.

First-quarter fiscal 2015 gross profit was $35.2 million compared with $35.4 million in the year-ago quarter. Gross margin was 23.0% of revenue compared with 24.6% in last year’s first quarter. The lower gross margin was primarily due to product mix.

Selling, general and administrative (SG&A) expenses were $29.2 million, compared with $28.5 million in last year's first quarter, primarily due to increased expenses associated with investments in talent and technology. Operating margin was 4.0% versus 4.8% in the prior-year quarter.

Net income and diluted earnings per share totaled $3.7 million and $0.44 for the first quarter of fiscal 2015, respectively, compared with $4.3 million and $0.51 for the prior-year quarter, respectively.

EBITDA* totaled $7.2 million, or $0.86 per diluted share, in the first quarter of fiscal 2015, compared with $8.2 million, or $0.98 per diluted share, in the prior-year quarter.

Quarterly Cash Dividends

The Board of Directors declared a quarterly cash dividend of $0.20 per common share payable on August 20, 2014 to holders of record on August 6, 2014. Any future declaration of dividends, and the establishment of record and payment dates, is subject to future determinations of the Board of Directors.

Business Outlook

The Company is maintaining EPS guidance for fiscal year 2015 in the range of $2.05 to $2.15. As TESSCO's fiscal year progresses and visibility increases, management may review and update its financial targets as appropriate.

Forecasting future results is inherently difficult for any business, and actual results may differ materially from those forecasted. The nature of the business is that TESSCO typically ships products within several days after booking orders. The lack of an order backlog makes it even more difficult to forecast future results. The Business Outlook published in this press release reflects 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.

First-Quarter Fiscal 2015 Conference Call

Management will host a conference call to discuss its first-quarter 2015 results on Wednesday, July 23, 2014 at 5:00 p.m. ET. To participate in the conference call, please call: 866-318-8620 (domestic call-in) or 617-399-5139 (international call-in) and reference code #15288022.

A live webcast of the conference call will be available at www.tessco.com/go/corporatepresentations. All participants should call or access the website approximately 10 minutes before the conference begins.

A telephone replay of the conference call will be available from 9:00 p.m. ET on July 23, 2014 until 11:59 p.m. ET on July 30, 2014 by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering confirmation #24768362. An archived replay of the conference call will also be available on the company's website at www.tessco.com/go/corporatepresentations.

*Non-GAAP Information

EBITDA and Adjusted EBITDA are measures used by management to evaluate the Company's ongoing operations and as general indicators of its 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. Adjusted EBITDA is defined as EBITDA plus stock compensation expense. Management believes EBITDA, Adjusted EBITDA as well as EBITDA and Adjusted 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 EBITDA, Adjusted EBITDA and EBITDA and Adjusted EBITDA per share may not be comparable to other similarly titled measures of other companies. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as measures of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA and Adjusted EBITDA per diluted share are also non-GAAP calculations defined as EBITDA or Adjusted EBITDA divided by the Company's diluted weighted average shares outstanding. Additionally, EBITDA or Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not reflect certain cash requirements such as interest payments, tax payments and debt service requirements. The amounts shown for EBITDA and Adjusted EBITDA as presented herein differ from the amounts calculated under the definition of EBITDA used in the Company's loan agreements. The definition of EBITDA as used in the Company's loan agreements is further adjusted for certain cash and non-cash charges/credits, including stock compensation expense, and is used to determine compliance with financial covenants and the ability to engage in certain activities such as incurring additional debt.

A reconciliation of the Company's non-GAAP to GAAP results is included as an exhibit to this release.

About TESSCO

TESSCO Technologies Inc. (TESS) makes wireless work. The convergence of wireless and the Internet is creating opportunities for new applications that revolutionize the way we live, work and play. TESSCO Technologies enables organizations to capitalize on these opportunities while providing an extraordinary business experience. We deliver the knowledge, product and supply-chain solutions required to build, use, maintain and resell wireless voice, data and video systems. The Company is a component of the Russell 2000® index.

Forward-Looking Statements

This press release, including the statements of Robert Barnhill and the discussion under the heading "Business Outlook," contains forward-looking statements as to anticipated results and future prospects. These forward-looking statements are based on current expectations and analysis, and actual results may differ materially. These forward-looking statements may generally be identified by the use of the words "may," "will," "expects," "anticipates," "believes," "estimates," and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward-looking. Forward-looking statements involve a number of risks and uncertainties. Our actual results may differ materially 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, 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.

We are not able to identify or control all circumstances that could occur in the future that may 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 as a result of consolidation among the wireless communications industry; the strength of our customers', vendors' and affinity partners' business; economic conditions that may impact customers' ability to fund or pay for our products and services; 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; third-party freight carrier interruption; increased competition; 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; claims against us for breach of the intellectual property rights of third parties; product liability claims; and the possibility that, for unforeseen 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.

   

TESSCO Technologies Incorporated

Consolidated Statements of Income (Unaudited)

 
Fiscal Quarters Ended
June 29, 2014     March 30, 2014     June 30, 2013
 
Revenues $ 152,946,300 $ 124,536,600 $ 144,108,800
Cost of goods sold   117,697,500   94,451,800   108,670,900
Gross profit 35,248,800 30,084,800 35,437,900
Selling, general and administrative expenses   29,176,400   25,315,700   28,474,100
Income from operations 6,072,400 4,769,100 6,963,800
Interest, net   28,400   18,300   54,600
Income before provision for income taxes 6,044,000 4,750,800 6,909,200
Provision for income taxes   2,372,600   1,795,500   2,617,000
Net income $ 3,671,400 $ 2,955,300 $ 4,292,200
 
Basic earnings per share $ 0.44 $ 0.36 $ 0.53
Diluted earnings per share $ 0.44 $ 0.35 $ 0.51
 
       

TESSCO Technologies Incorporated

Consolidated Balance Sheets

 
June 29, 2014 March 30, 2014
(unaudited) (audited)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 6,236,200 $ 11,467,900
Trade accounts receivable, net 80,678,500 67,495,700
Product inventory 73,015,800 61,955,700
Deferred tax assets 6,922,600 6,913,000
Prepaid expenses and other current assets   4,736,100     2,336,600  
Total current assets 171,589,200 150,168,900
 
Property and equipment, net 22,087,200 22,765,400
Goodwill, net 11,684,700 11,684,700
Other long-term assets   2,341,300     2,341,300  
Total assets $ 207,702,400   $ 186,960,300  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable $ 71,855,400 $ 50,756,900
Payroll, benefits and taxes 5,178,300 7,670,100
Income and sales tax liabilities 2,260,700 2,477,700
Accrued expenses and other current liabilities 1,138,400 923,600
Revolving line of credit -- --
Current portion of long-term debt   250,200     250,200  
Total current liabilities 80,683,000 62,078,500
 
Deferred tax liabilities 4,260,700 4,260,700
Long-term debt, net of current portion 2,145,700 2,208,200
Other long-term liabilities   3,490,200     3,584,800  
Total liabilities   90,579,600     72,132,200  
 
Shareholders’ Equity:
Preferred stock -- --
Common stock 95,700 94,200
Additional paid-in capital 55,679,800 53,987,700
Treasury stock, at cost (51,488,800 ) (50,084,600 )
Retained earnings   112,836,100     110,830,800  
Total shareholders’ equity   117,122,800     114,828,100  
 
Total liabilities and shareholders' equity $ 207,702,400   $ 186,960,300  
 
   

TESSCO Technologies Incorporated

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

 
Fiscal Quarters Ended
June 29, 2014     March 30, 2014     June 30, 2013
Net income $ 3,671,400 $ 2,955,300 $ 4,292,200
Add:
Provision for income taxes 2,372,600 1,795,500 2,617,000
Interest, net 28,400 18,300 54,600
Depreciation and amortization   1,167,800   1,149,600   1,212,900
EBITDA 7,240,200 5,918,700 8,176,700
Add: Stock based compensation   449,600  

492,100

  579,900
Adjusted EBITDA $ 7,689,800 $ 6,410,800 $ 8,756,600
EBITDA per diluted share $ 0.86 $ 0.70 $ 0.98
Adjusted EBITDA per diluted share $ 0.91 $ 0.76 $ 1.04
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
   

Three months ended
June 29, 2014

 

Market Revenues

Public Carriers, Contractors & Program Managers $ 41,418
Private & Government System Operators 29,004
Commercial Dealers & Resellers 38,284
Retailer, Independent Dealer Agents & Carriers   44,240  
Revenue, excluding Major 3PL relationship 152,946
Major 3PL relationship   --  
Total revenues   152,946  
 

Gross Profit

Public Carriers, Contractors & Program Managers 7,193
Private & Government System Operators 7,913
Commercial Dealers & Resellers 10,637
Retailer, Independent Dealer Agents & Carriers   9,506  
Gross profit, excluding Major 3PL relationship 35,249
% of revenues 23.0 %
Major 3PL relationship   --  
Total gross profit   35,249  
% of revenues 23.0 %
 
Direct expenses   18,790  
Segment net profit contribution 16,459
% of revenues 10.8 %
Corporate support expenses*   10,415  
Income before provision for income taxes $ 6,044  
% of revenues 4.0 %
 
Growth Rates Compared to Prior Year Period:

Revenues

Public Carriers, Contractors & Program Managers 10.8 %
Private & Government System Operators 4.0 %
Commercial Dealers & Resellers 6.2 %
Retailer, Independent Dealer Agents & Carriers   3.4 %
Revenue, excluding Major 3PL relationship 6.1 %
Major 3PL relationship   --  
Total revenues   6.1 %
 

Gross Profit

Public Carriers, Contractors & Program Managers -8.9 %
Private & Government System Operators 1.4 %
Commercial Dealers & Resellers 3.8 %
Retailer, Independent Dealer Agents & Carriers   0.1 %
Gross profit, excluding Major 3PL relationship -0.5 %
Major 3PL relationship   --  
Total gross profit -0.5 %
 
Direct expenses   6.7 %
Segment net profit contribution -7.7 %
Corporate support expenses*   -4.6 %
Income before provision for income taxes   -12.5 %
 
* Includes corporate overhead, facilities expense, depreciation, interest and company-wide pay-for-performance bonus expense
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands)
   

Three months ended
June 29, 2014

Revenues

Base station infrastructure $ 62,887
Network systems 30,544
Installation, test and maintenance 10,922
Mobile device accessories   48,593  
Total revenues   152,946  
 

Gross Profit

Base station infrastructure 17,075
Network systems 4,685
Installation, test and maintenance 2,533
Mobile device accessories   10,956  
Total gross profit $ 35,249  

% of revenues

23.0 %
 
Growth Rates Compared to Prior Year Period
 

Revenues

Base station infrastructure -9.6 %
Network systems 60.2 %
Installation, test and maintenance 11.9 %
Mobile device accessories   6.2 %
Total revenues 6.1 %
 

Gross Profit

Base station infrastructure -9.6 %
Network systems 22.7 %
Installation, test and maintenance 7.8 %
Mobile device accessories   5.5 %
Total gross profit -0.5 %
 

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