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TESSCO Technologies, Inc. : TESSCO Announces Record Revenue of $226 Million and Record EPS of $0.59 for Third Quarter

01/17/2012 | 05:30pm US/Eastern

  • Quarterly operating margin increases to 3.5%
  • Record quarterly EBITDA* of $1.12 per share
  • 9-month revenue reaches $539 million
  • 9-month EPS reaches $1.60
  • 9-month EBITDA per share reaches $3.08
  • $0.15 per share dividend date set

TESSCO Technologies Incorporated (NASDAQ:TESS), a leading provider to the wireless communication industry, today reported revenues of $226.3 million and net income of $4.8 million, or $0.59 per diluted share, for the third fiscal quarter ended December 25, 2011.

Chairman and CEO Robert Barnhill commented, "It was a great quarter, resulting in record revenues and earnings! Sales in our Retail segment surged 67 percent as our customers, including Tier 1 carrier customers, responded to consumers' continued quest to equip their cell phones with new cases, chargers and head sets. Our Commercial segment continued to contribute strongly to our results as we supported the construction and maintenance of our customers' wireless systems. We continued to deliver exceptional value to all our customers with growing profitability; operating profit margin reached 3.5 percent, a 35 percent increase compared to last year's quarter.

"Fiscal year 2012 is indeed proving to be a remarkable year for TESSCO as we successfully leverage the many opportunities arising from the convergence of wireless and the internet, broaden our addressable market, and build profitability and productivity.

"Going forward, we expect continued explosion of smart mobility devices, the accelerated expansion and enhancement of the carrier networks to support the devices' insatiable demand for bandwidth, and the creation of new private wireless systems to transform the way we live, work and play. TESSCO is there, leveraging these trends and delivering the immediate, reliable availability of the product plus value chain solutions needed, at the lowest total cost. We continue our goal of driving shareowner value with intense focus on the success of our customers, manufacturers and team members."

Third-Quarter Fiscal 2012 Financial Results

For its fiscal 2012 third quarter, TESSCO's revenue grew by 35 percent compared to last year's third quarter and reached $226.3 million, while its gross profit grew by 17 percent and reached $39.5 million. The Company's operating margin improved to 3.5 percent compared to 2.6 percent in last year's third quarter.

In the Retail segment, revenue increased by 67 percent and gross profit increased by 41 percent. Within this segment, the retailer, dealer agent and Tier 2/3 carrier market produced 15 percent revenue growth and 36 percent gross profit growth, and the Tier 1 carrier market experienced 93 percent revenue growth and 44 percent gross profit growth. The growth in the Tier 1 carrier market was mostly attributable to the expected expansion of our relationship with our major Tier 1 carrier customer. Retail segment directly allocatable expenses rose by 7 percent, and market net profit contribution increased by 100 percent.

In the Commercial segment, revenue increased by 2 percent and gross profit increased by 3 percent. Within this segment, the private and government systems market produced 9 percent revenue growth and 11 percent gross profit growth; the commercial dealer and reseller market produced 15 percent revenue growth and 11 percent gross profit growth; and the public systems operator market experienced a 21 percent decline in both revenue and gross profit. Segment directly allocatable expenses declined by 13 percent, and market net profit contribution increased by 24 percent.

Corporate support expenses grew by $3.1 million, or 33 percent, for the quarter. This growth is wholly attributable to increases in the company-wide pay-for-performance bonus accruals, which offset declines in other corporate support expenses.

Net income totaled $4.8 million, or $0.59 per diluted share, in the third quarter as compared to $3.0 million, or $0.38 per diluted share, in the prior-year quarter.

EBITDA* totaled $9.1 million, or $1.12 per diluted share, in the third quarter of fiscal 2012 as compared to $5.5 million, or $0.69 per diluted share, in the prior-year quarter.

For the first nine months of fiscal 2012, TESSCO reported revenues of $538.6 million and net income of $12.9 million, or $1.60 per diluted share. These results compare to revenues of $474.9 million and net income of $8.4 million, or $1.07 per diluted share, in the first nine months of fiscal 2011. EBITDA for the first nine months of fiscal 2012 totaled $24.8 million, or $3.08 per share, compared to $16.6 million, or $2.11 per share, in the first nine months of fiscal 2011.

As of December 25, 2011, the company's cash balance totaled $14.5 million and there was no balance outstanding on the revolving line of credit.

Quarterly Cash Dividend

As previously reported, the company is continuing its quarterly dividend program with a $0.15 per common share cash dividend payable on February 15, 2012, to holders of record on February 1, 2012. Any future declaration of dividends, and the establishment of record and payment dates, is subject to further determinations of the company's Board of Directors.

Business Outlook

Based on results through the third quarter of fiscal 2012 and our view of the current pipeline of business opportunities, we currently expect that earnings per diluted share for fiscal 2012 will range from $1.90 to $2.10.

Forecasting future results is inherently difficult for any business and actual results may differ materially from those forecasted. Moreover, the nature of our business is that we typically ship 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

As we have previously disclosed, our major tier one carrier customer has indicated that, over time, it expects to continue to explore business model changes in an ongoing effort to lower total costs. Notwithstanding the recent expansion of the relationship with this customer, it should be noted that this relationship, like those with most of our other customers and suppliers, contains no ongoing purchase or sale obligations and is terminable by either party upon relatively short notice. Further, any future business model changes by our largest customer put our supply chain business with this customer at risk. Absent this supply chain relationship, we could, however, maintain the ability to sell our proprietary products to this customer.

Third-Quarter Fiscal 2012 Conference Call

Management will host a conference call to discuss its results for the third fiscal quarter, ended December 25, 2011, on Wednesday, January 18, 2012 at 10:00 a.m. ET. To participate in the conference call, please call: 800-901-5217 (domestic call-in) or 617-786-2964 (international call-in) and reference code #53070260. A live webcast of the conference call will be available at http://www.tessco.com/go/pressroom. 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 1:00 p.m. ET on January 18, 2012 until 5:00 p.m. ET on January 25, 2012 by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering confirmation #90641439. An archived replay of the conference call will also be available on the company's website.

*Non-GAAP Information

EBITDA, a measure used by management to evaluate the company's ongoing operations and as a general indicator 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), is defined as income from operations, plus interest expense, net of interest income, provision for income taxes, and depreciation and amortization. Management believes EBITDA as well as 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 and EBITDA per share may not be comparable to other similarly titled measures of other companies. EBITDA is not a recognized term under GAAP and 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. EBITDA per diluted share is also a non-GAAP calculation defined as EBITDA divided by the company's diluted weighted average shares outstanding. Additionally, EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not reflect certain cash requirements such as interest payments, tax payments and debt service requirements. The amounts shown for 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, (NASDAQ:TESS), is Your Total Source® for making wireless work. The convergence of wireless and the internet is revolutionizing the way we live and work. New systems and applications are unlocking human potential at an unprecedented rate. TESSCO is there, thinking in new ways for exceptional outcomes. TESSCO architects and delivers, with innovation, productivity and speed, the product and value chain solutions to organizations responsible for building, using and maintaining wireless voice, data and video systems.

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; failure of our information technology system or distribution system; technology changes in the wireless communications industry; third-party freight carrier interruption; increased competition; our inability to access capital and obtain financing as and when needed; 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 Nine Months Ended
December 25, September 25, December 26, December 25,

December 26,

  2011   2011   2010   2011   2010
 
Revenues $ 226,250,100 $ 148,837,400 $ 167,940,000 $ 538,602,500 $ 474,919,000
Cost of goods sold   186,773,300   114,847,500   134,137,000   427,935,400   371,996,200
Gross profit 39,476,800 33,989,900 33,803,000 110,667,100 102,922,800
Selling, general and administrative expenses   31,596,300   28,159,900   29,465,800   89,431,300   89,581,100
Income from operations 7,880,500 5,830,000 4,337,200 21,235,800 13,341,700
Interest , net   73,500   72,900   118,900   251,900   326,500
Income before provision for income taxes 7,807,000 5,757,100 4,218,300 20,983,900 13,015,200
Provision for income taxes   3,033,400   2,216,900   1,257,100   8,095,900   4,638,800
Net income $ 4,773,600 $ 3,540,200 $ 2,961,200 $ 12,888,000 $ 8,376,400
 
Basic earnings per share $ 0.61 $ 0.46 $ 0.39 $ 1.67 $ 1.11
Diluted earnings per share $ 0.59 $ 0.44 $ 0.38 $ 1.60 $ 1.07
 
 
TESSCO Technologies Incorporated
Consolidated Balance Sheets
       
December 25, 2011 March 27, 2011
(unaudited) (audited)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 14,451,300 $ 8,178,200
Trade accounts receivable, net 123,617,200 65,708,700
Product inventory 68,446,300 45,709,800
Deferred tax assets 5,004,500 5,004,500
Prepaid expenses and other current assets   1,884,800     1,668,900  
Total current assets 213,404,100 126,270,100
 
Property and equipment, net 22,606,600 21,148,100
Goodwill, net 11,684,700 11,684,700
Other long-term assets   1,961,100     2,057,700  
Total assets $ 249,656,500   $ 161,160,600  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 132,640,900 $ 62,913,000
Payroll, benefits and taxes 13,385,500 7,342,500
Income and sales tax liabilities 3,111,200 2,539,300
Accrued expenses and other current liabilities 1,101,900 1,278,400
Revolving line of credit -- --
Current portion of long-term debt   248,700     359,100  
Total current liabilities 150,488,200 74,432,300
 
Deferred tax liabilities 3,407,900 3,407,900
Long-term debt, net of current portion 2,770,700 2,959,100
Other long-term liabilities   1,874,500     1,481,200  
Total liabilities   158,541,300     82,280,500  
 
Shareholders' Equity:
Preferred stock -- --
Common stock 86,800 84,100
Additional paid-in capital 43,750,000 40,668,100
Treasury stock, at cost (45,044,100 ) (44,388,400 )
Retained earnings 92,322,500 82,540,900
Accumulated other comprehensive loss   --     (24,600 )
Total shareholders' equity   91,115,200     78,880,100  
 
Total liabilities and shareholder's equity $ 249,656,500   $ 161,160,600  
 
 
TESSCO Technologies Incorporated
Reconciliation of Net Income to Earnings Before Interest, Taxes and Depreciation and
Amortization (EBITDA) (Unaudited)
                   
Fiscal Quarters Ended Nine Months Ended
December 25, September 25, December 26, December 25, December 26,
2011 2011 2010 2011 2010
Net income $ 4,773,600 $ 3,540,200 $ 2,961,200 $ 12,888,000 $ 8,376,400
Add:
Provision for income taxes 3,033,400 2,216,900 1,257,100 8,095,900 4,638,800
Interest, net 73,500 72,900 118,900 251,900 326,500
Depreciation and amortization   1,243,000   1,157,700   1,141,600   3,573,700   3,240,400
EBITDA $ 9,123,500 $ 6,987,700 $ 5,478,800 $ 24,809,500 $ 16,582,100
EBITDA per diluted share $ 1.12 $ 0.87 $ 0.69 $ 3.08 $ 2.11
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
           
Three months ended December 25, 2011
Commercial Retail
Segment Segment Total

Revenues

Public carrier, contractor & program manager market $ 18,573 $ - $ 18,573
Private system operator & government market 33,617 - 33,617
Commercial dealer & reseller market 32,724 - 32,724
Retailer, dealer agent & Tier 2/3 carrier market   -   33,404   33,404
Revenues, excluding Tier 1 carrier market 84,914 33,404 118,318
Tier 1 carrier market   -   107,932   107,932
Total revenues   84,914   141,336   226,250
 

Gross Profit

Public carrier, contractor & program manager market 4,336 - 4,336
Private system operator & government market 8,632 - 8,632
Commercial dealer & reseller market 8,784 - 8,784
Retailer, dealer agent & Tier 2/3 carrier market   -   7,233   7,233
Gross profit, excluding Tier 1 carrier market 21,752 7,233 28,985
% of revenues 25.6% 21.7% 24.5%
Tier 1 carrier market   -   10,492   10,492
Total gross profit   21,752   17,725   39,477
% of revenues 25.6% 12.5% 17.4%
 
Directly allocatable expenses   10,400   8,680   19,080
Segment net profit contribution $ 11,352 $ 9,045 20,397
% of revenues 13.4% 6.4% 9.0%
Corporate support expenses*   12,590
Income before provision for income taxes $ 7,807
% of revenues 3.5%
 
Growth Rates Compared to Prior Year Period:

Revenues

Public carrier, contractor & program manager market -21.1% -21.1%
Private system operator & government market 8.6% 8.6%
Commercial dealer & reseller market 14.6% 14.6%
Retailer, dealer agent & Tier 2/3 carrier market         15.3%       15.3%
Revenues, excluding Tier 1 carrier market 2.2% 15.3% 5.6%
Tier 1 carrier market         93.0%       93.0%
Total revenues   2.2%       66.5%       34.7%
 

Gross Profit

Public carrier, contractor & program manager market -21.1% -21.1%
Private system operator & government market 11.0% 11.0%
Commercial dealer & reseller market 10.8% 10.8%
Retailer, dealer agent & Tier 2/3 carrier market         36.4%       36.4%
Gross profit, excluding Tier 1 carrier market 2.6% 36.4% 9.4%
Tier 1 carrier market         43.8%       43.8%
Total gross profit 2.6% 40.7% 16.8%
 
Directly allocatable expenses   -13.4%       7.4%       -5.0%
Segment net profit contribution   23.5%       100.2% 48.8%
Corporate support expenses*   32.6%
Income before provision for income taxes   85.1%
* Includes corporate overhead, facilities expense, depreciation, interest and company-wide pay-for-performance bonus expense
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
           
Nine months ended December 25, 2011
Commercial Retail
Segment Segment Total

Revenues

Public carrier, contractor & program manager market $ 56,804 $ - $ 56,804
Private system operator & government market 96,158 - 96,158
Commercial dealer & reseller market 92,861 - 92,861
Retailer, dealer agent & Tier 2/3 carrier market   -     88,946     88,946  
Revenues, excluding Tier 1 carrier market 245,823 88,946 334,769
Tier 1 carrier market   -     203,833     203,833  
Total revenues   245,823     292,779     538,602  
 

Gross Profit

Public carrier, contractor & program manager market 12,995 - 12,995
Private system operator & government market 26,764 - 26,764
Commercial dealer & reseller market 25,896 - 25,896
Retailer, dealer agent & Tier 2/3 carrier market   -     19,228     19,228  
Gross profit, excluding Tier 1 carrier market 65,655 19,228 84,883
% of revenues 26.7 % 21.6 % 25.4 %
Tier 1 carrier market   -     25,784     25,784  
Total gross profit   65,655     45,012     110,667  
% of revenues 26.7 % 15.4 % 20.5 %
 
Directly allocatable expenses   30,747     22,197     52,944  
Segment net profit contribution $ 34,908   $ 22,815   57,723
% of revenues 14.2 % 7.8 % 10.7 %
Corporate support expenses*   36,739  
Income before provision for income taxes $ 20,984  
% of revenues 3.9 %
 
Growth Rates Compared to Prior Year Period:
 

Revenues

Public carrier, contractor & program manager market -18.3 %

-18.3

%

 

Private system operator & government market 17.8 %

17.8

%

 

Commercial dealer & reseller market 5.2 %

5.2

%

 

Retailer, dealer agent & Tier 2/3 carrier market         11.1 %      

11.1

%

 

Revenues, excluding Tier 1 carrier market 2.7 % 11.1 %

4.8

%

 

Tier 1 carrier market         31.2 %      

31.2

%

 

Total revenues   2.7 %       24.3 %      

13.4

%

 

 

Gross Profit

Public carrier, contractor & program manager market -19.2 %

-19.2

%

 

Private system operator & government market 24.5 %

24.5

%

 

Commercial dealer & reseller market 8.9 %

8.9

%

 

Retailer, dealer agent & Tier 2/3 carrier market         16.0 %      

16.0

%

 

Gross profit, excluding Tier 1 carrier market 7.0 % 16.0 %

8.9

%

 

Tier 1 carrier market         3.3 %      

3.3

%

 

Total gross profit   7.0 %       8.3 %      

7.5

%

 

 
Directly allocatable expenses   -14.2 %       -9.7 %      

-12.4

%

 

Segment net profit contribution   36.7 %       34.4 %

35.8

%

 

Corporate support expenses*  

24.5

%

 

Income before provision for income taxes  

61.2

%

 

* 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 Nine months ended
December 25, 2011 December 25, 2011

Revenues

Base station infrastructure $ 50,237 $ 146,909
Network systems 18,861 57,474
Installation, test and maintenance 12,112 34,188
Mobile device accessories   145,040     300,031  
Total revenues 226,250 538,602
 

Gross Profit

Base station infrastructure 15,504 45,407
Network systems 4,073 11,718
Installation, test and maintenance 2,736 7,655
Mobile device accessories   17,164     45,887  
Total gross profit 39,477 110,667
% of revenues 17.4 % 20.5 %
 
Growth Rates Compared to Prior Year Period
 

Revenues

Base station infrastructure 3.4 % -0.9 %
Network systems 13.4 % 16.5 %
Installation, test and maintenance -15.8 % -1.3 %
Mobile device accessories   64.2 %   23.6 %
Total revenues 34.7 % 13.4 %
 

Gross Profit

Base station infrastructure 9.4 % 9.2 %
Network systems 18.4 % 36.1 %
Installation, test and maintenance -4.6 % -7.7 %
Mobile device accessories   28.8 %   3.2 %
Total gross profit 16.8 % 7.5 %

TESSCO Technologies Incorporated
David Young, 410-229-1380
Chief Financial Officer
young@tessco.com
or
LHA
Harriet Fried, 212-838-3777
hfried@lhai.com


© Business Wire 2012
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