TESSCO TECHNOLOGIES INCORPORATED (NASDAQ: TESS), today reported financial results for its fourth quarter of fiscal 2018, ended April 1, 2018.

Fourth-Quarter Highlights:

  • Revenue of $148.9 million, up 21% year over year
  • Revenue growth in all of the Company’s markets from the prior-year fourth quarter
  • Overall expense management contributed to operating margin of 0.8%, compared with (1.4)% in the fourth quarter of fiscal 2017
  • Profit turnaround to $0.07 diluted earnings per share from a loss per share of $(0.10) a year ago
  • Declared quarterly dividend of $0.20 per share
                   
     

Fourth Quarter
FY 2018

 

   

Fourth Quarter
FY 2017

 

   

Third Quarter
FY 2018

 

Revenue     $148.9M     $122.6M     $146.3M
Earnings per diluted share     $0.07     $(0.10)     $0.19
EBITDA per diluted share*     $0.25     $(0.11)     $0.38
Operating margin     0.8%     (1.4)%     1.5%
Cash balance     $0.0M     $8.5M     $0.0M
Line of credit balance outstanding     $10.8M     $0.0M     $5.9M
           

* 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 (*) either in the above chart or in the text 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.

Fourth-Quarter Revenue by Market:

             
     

Year over Year
Q4 FY 2018 vs.
Q4 FY 2017

    

Sequential
Q4 FY 2018 vs.
Q3 FY 2018

Public Carrier     82%     69%
Value-Added Resellers     5%     (1)%
Government     8%     (3)%
Private System Operators     27%     (7)%
Retail     4%     (20)%
Total     21%     2%
       

“We continued to execute well on our strategic initiatives during the fourth quarter, delivering year-over-year fourth quarter revenue growth of 21%,” said Murray Wright, President and Chief Executive Officer. “Revenues for the entire fiscal year grew 9%, which is our highest year-over-year growth since fiscal 2012. These achievements were the result of solid execution by our entire team in growing revenues and improving profitability. On the top line, the significant increase from a year ago was driven by 82% growth in sales to the carrier ecosystem and supported by greater sales in all of our markets. While the domestic carrier ecosystem showed growth during the fourth quarter, we believe that our revenue growth exceeded the overall ecosystem growth due in part to the new customer relationships we established this year. On the bottom line, this was our first profitable fourth quarter since 2014. This resulted from higher revenues and improved operating leverage due to our successful productivity enhancements.

“As we look to fiscal 2019, our value proposition is resonating with suppliers and customers across our markets,” Wright continued. “The initiatives we put in place during the past year are beginning to drive our results, and we are focused on balancing the implementation of our go-to-market strategy with improved operating efficiency. We expect continued companywide execution to propel further growth in revenue and profitability in the next fiscal year.”

Fourth-Quarter and Fiscal Year 2018 Financial Results

For the fiscal 2018 fourth quarter, revenues totaled $148.9 million, compared with $122.6 million for the fourth quarter of fiscal 2017. The increase in revenue was driven primarily by the Company’s public carrier market and supported by greater sales to the private system operator, value-added reseller, government and retail markets.

Gross profit was $31.5 million for the fourth quarter of fiscal 2018, compared with $25.9 million for the same quarter of fiscal 2017. The significant increase in fourth-quarter gross profit year over year was primarily the result of higher total sales. Gross margin was 21.2% of revenue for the fourth quarter of fiscal 2018, consistent with last year’s fourth quarter.

As a result of the Company’s ongoing expense control initiatives and productivity enhancements, selling, general and administrative (SG&A) expenses increased 13%, significantly lower on a percentage basis than the revenue and gross profit increase, to $30.4 million. SG&A as a percentage of revenue for the fourth quarter declined from 21.9% to 20.4%.

Net income and earnings per share (EPS) were $0.6 million and $0.07, respectively, for the fourth quarter of fiscal 2018, compared with net loss of $0.9 million, or $(0.10) per share, for the prior-year fourth quarter. The fiscal 2017 fourth quarter results include a $0.8 million restructuring charge.

For fiscal year 2018, revenue and gross profit increased 9% and 8%, respectively. Net income and earnings per share totaled $4.7 million and $0.55, respectively, compared to $1.4 million and $0.17, respectively, in fiscal 2017.

The fourth quarter of fiscal years 2018 and 2017 contained 14 and 13 weeks, respectively.

Cash Dividend

The Company’s Board of Directors has declared a quarterly cash dividend of $0.20 per common share payable on June 4, 2018 to common stockholders of record on May 21, 2018. 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 currently anticipates year-over-year growth in revenue and profitability in its fiscal 2019. While the company does expect considerable growth in the carrier ecosystem, it also expects this to result in a lower overall year-over-year gross margin, given the lower-margin nature of many of these large carrier relationships.

Forecasting future results or trends is inherently difficult for any business, and actual results or trends may differ materially from those forecasted. The nature of the business is that TESSCO typically ships products within several days after booking orders, which makes it more difficult to forecast future results. The Business Outlook published in this press release reflects only the Company’s current best estimate and it assumes no obligation to update the information contained in this press release, including the Business Outlook, at any time.

Fourth-Quarter Fiscal 2018 Conference Call

Management will host a conference call to discuss fourth quarter FY2018 results tomorrow, Tuesday, May 8, 2018 at 8:30 a.m. ET. To participate in the conference call, please call 855-319-5921 (domestic call-in) or 503-343-6034 (international call-in) and reference code #6299655.

A live webcast of the conference call will be available on the Events page of the Company’s website. 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 11:30 a.m. ET on May 8, 2018 until 11:59 p.m. ET on May 15, 2018 by calling 855-859-2056 (domestic) or 404-537-3406 (international) and entering confirmation #6299655. An archived replay of the conference call will also be available on the Events page of the Company's website.

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 400 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 as to anticipated results and future prospects. 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 26, 2017, 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.

             

TESSCO Technologies Incorporated

Consolidated Statements of Income (Unaudited)

 
Fiscal Quarters Ended Fiscal Years Ended

April 1,
2018

      

March 26,
2017

      

December 24,
2017

 

April 1,
2018

      

March 26,
2017

 
Revenues $ 148,920,100 $ 122,602,900 $ 146,260,300 $ 580,274,700 $ 533,295,100
Cost of goods sold   117,381,400   96,665,300   116,660,500   460,046,300   421,527,300
Gross profit 31,538,700 25,937,600 29,599,800 120,228,400 111,767,800
Selling, general and administrative expenses 30,357,600 26,890,400 27,413,200 112,326,700 108,416,300
Restructuring   -   806,600   -   -   806,600

Total selling, general and administrative expenses

  30,357,600   27,697,000   27,413,200   112,326,700   109,222,900
Income (loss) from operations

1,181,100

(1,759,400)

2,186,600 7,901,700 2,544,900
Interest, net   89,500   (7,100)   114,500   429,100   58,600
Income (loss) before income tax provision (benefit) 1,091,600 (1,752,300) 2,072,100 7,472,600 2,486,300
Income tax provision (benefit)   468,300   (895,000)   501,900   2,822,300   1,041,200
Net income (loss) $ 623,300 $ (857,300) $ 1,570,200 $ 4,650,300 $ 1,445,100
 
Basic earnings (loss) per share $ 0.07 $ (0.10) $ 0.19 $ 0.56 $ 0.17
Diluted earnings (loss) per share $ 0.07 $ (0.10) $ 0.19 $ 0.55 $ 0.17
           

TESSCO Technologies Incorporated

Consolidated Balance Sheets

 
April 1, 2018 March 26, 2017
(unaudited) (audited)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 19,400 $ 8,540,100
Trade accounts receivable, net 87,862,300 64,778,900
Product inventory 72,323,000 63,984,300
Prepaid expenses and other current assets   4,489,100   3,864,100
Total current assets 164,693,800 141,167,400
 
Property and equipment, net 13,662,800 13,830,900
Goodwill, net 11,677,700 11,677,700
Deferred tax assets

165,400

--
Other long-term assets   8,678,900   7,304,500
Total assets $

198,878,600

$ 173,980,500
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable $ 67,041,100 $ 53,581,400
Payroll, benefits and taxes 8,291,100 6,772,100
Income and sales tax liabilities

2,339,200

1,364,700
Accrued expenses and other current liabilities 1,370,300 2,228,200
Revolving line of credit 10,835,400 --
Current portion of long-term debt   27,300   26,500
Total current liabilities

89,904,400

63,972,900
 
Deferred tax liabilities -- 386,800
Long-term debt, net of current portion 2,300 29,800
Other long-term liabilities  

1,465,400

  1,574,700
Total liabilities  

91,372,100

  65,964,200
 
Shareholders’ Equity:
Preferred stock -- --
Common stock 99,000 98,400
Additional paid-in capital 60,611,900 59,006,000
Treasury stock, at cost (57,503,000) (57,437,600)
Retained earnings   104,298,600

 

  106,349,500
Total shareholders’ equity   107,506,500

 

  108,016,300
 

Total liabilities and shareholders' equity

$

198,878,600

$ 173,980,500
             

TESSCO Technologies Incorporated

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

 
Fiscal Quarters Ended Fiscal Years Ended

April 1,
2018

      

March 26,
2017

      

December 24,
2017

April 1,
2018

      

March 26,
2017

 
Net Income (loss) as reported $ 623,300 $ (857,300) $ 1,570,200 $ 4,650,300 $ 1,445,100
Add:
Income tax provision (benefit) 468,300 (895,000) 501,900 2,822,300 1,041,200
Interest, net 89,500 (7,100) 114,500 429,100 58,600
Depreciation and amortization   961,900   877,700   999,700   3,992,600   4,238,900
EBITDA $ 2,143,000 $ (881,700) $ 3,186,300 $ 11,894,300 $ 6,783,800
Add:
Stock based compensation   256,700   143,300   243,500   1,002,100   434,400
EBITDA, adjusted $ 2,399,700 $ (738,400) $ 3,429,800 $ 12,896,400 $ 7,218,200
 
EBITDA per diluted share $ 0.25

$

(0.11)

$ 0.38 $ 1.40 $ 0.81
Adjusted EBITDA per diluted share $ 0.28 $ (0.09) $ 0.41 $ 1.52 $ 0.87
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
                                         
 

 

Three Months Ended
April 1, 2018

Three Months Ended
March 26, 2017

 

Growth Rates Compared to
Prior Year Period

 

Market Revenues

Commercial Retail Total Commercial Retail Total Commercial Retail Total
Public Carrier $ 38,319 $ - $ 38,319 $ 21,054 $ - $ 21,054 82.0% - 82.0%
Government 10,331 - 10,331 9,584 - 9,584 7.8% - 7.8%
Private System Operators 23,153 - 23,153 18,286 - 18,286 26.6% - 26.6%
Value Added Resellers 33,340 - 33,340 31,717 - 31,717 5.1% - 5.1%
Retail   -   43,777   43,777   -   41,962   41,962 - 4.3% 4.3%
Total revenues $ 105,143 $ 43,777 $ 148,920 $ 80,641 $ 41,962 $ 122,603 30.4% 4.3% 21.5%
 
Market Gross Profit Commercial Retail Total Commercial Retail Total Commercial Retail Total
Public Carrier $ 5,624 $ - $ 5,624 $ 3,384 $ - $ 3,384 66.2% - 66.2%
Government 2,282 - 2,282 2,160 - 2,160 5.6% - 5.6%
Private System Operators 5,397 - 5,397 3,992 - 3,992 35.2% - 35.2%
Value Added Resellers 8,888 - 8,888 8,312 - 8,312 6.9% - 6.9%
Retail   -   9,348   9,348   -   8,090   8,090 - 15.6% 15.6%
Total gross profit $ 22,191 $ 9,348 $ 31,539 $ 17,848 $ 8,090 $ 25,938 24.3% 15.6% 21.6%
% of revenues   21.1%       21.4%       21.2%   22.1%       19.3%       21.2%              
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
               

Three Months
Ended
April 1,
2018

Three Months
Ended

March 26,
2017

Growth Rates
Compared to
Prior Year
Period

 

Product Revenues

Base Station Infrastructure $ 73,149 $ 52,779 38.6%
Network Systems 21,601 22,089 (2.2%)
Installation, Test and Maintenance 9,273 6,582 40.9%
Mobile device accessories   44,897   41,153 9.1%
Total revenues $ 148,920 $ 122,603 21.5%
 

Product Gross Profit

Base Station Infrastructure $ 16,589 $ 13,542 22.5%
Network Systems 3,479 2,392 45.4%
Installation, Test and Maintenance 1,660 1,383 20.0%
Mobile device accessories   9,811   8,621 13.8%
Total gross profit $ 31,539 $ 25,938 21.6%
% of revenues 21.2% 21.2%
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
                                         
 

 

Year Ended
April 1, 2018

Year Ended
March 26, 2017

Growth Rates Compared to
Prior Period

 
Market Revenues Commercial Retail Total Commercial Retail Total Commercial Retail Total
Public Carrier $ 115,061 $ - $ 115,061 $ 82,015 $ - $ 82,015 40.3% - 40.3%
Government 40,481 - 40,481 36,676 - 36,676 10.4% - 10.4%
Private System Operators 93,246 - 93,246 82,508 - 82,508 13.0% - 13.0%
Value Added Resellers 136,888 - 136,888 130,486 - 130,486 4.9% - 4.9%
Retail   -   194,599   194,599   -   201,610   201,610 - (3.5%) (3.5%)
Total revenues $ 385,676 $ 194,599 $ 580,275 $ 331,685 $ 201,610 $ 533,295 16.3% (3.5%) 8.8%
 
Market Gross Profit Commercial Retail Total Commercial Retail Total Commercial Retail Total
Public Carrier $ 16,707 $ - $ 16,707 $ 13,706 $ - $ 13,706 21.9% - 21.9%
Government 8,954 - 8,954 8,235 - 8,235 8.7% - 8.7%
Private System Operators 20,363 - 20,363 18,073 - 18,073 12.7% - 12.7%
Value Added Resellers 35,303 - 35,303 35,530 - 35,530 (0.6%) - (0.6%)
Retail   -   38,901   38,901   -   36,224   36,224 - 7.4% 7.4%
Total gross profit $ 81,327 $ 38,901 $ 120,228 $ 75,544 $ 36,224 $ 111,768 7.7% 7.4% 7.6%
% of revenues   21.1%       20.0%       20.7%   22.8%       18.0%       21.0%              
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
                     

Year Ended

April 1, 2018

Year Ended

March 26, 2017

Growth Rates
Compared to
Prior Year

Period

 

Product Revenues

Base Station Infrastructure $ 248,949 $ 209,869 18.6%
Network Systems 98,642 87,222 13.1%
Installation, Test and Maintenance 33,200 31,851 4.2%
Mobile device accessories   199,484   204,353 (2.4%)
Total revenues $ 580,275 $ 533,295 8.8%
 

Product Gross Profit

Base Station Infrastructure $ 58,015 $ 54,280 6.9%
Network Systems 14,649 11,897 23.1%
Installation, Test and Maintenance 6,266 5,921 5.8%
Mobile device accessories   41,298   39,670 4.1%
Total gross profit $ 120,228 $ 111,768 7.6%
% of revenues 20.7% 21.0%