HUNT VALLEY, Md.--(BUSINESS WIRE)--TESSCO Technologies Incorporated (NASDAQ:TESS), a leading provider to the wireless communication industry, today announced its results for the third quarter of fiscal 2011 ended December 26, 2010.
“I am pleased with the quarter as we delivered $0.38 in EPS, earned a larger share of our customers’ purchases, generated strong operating cash flow, and executed on new marketing and sales initiatives,” said Chairman and CEO Robert B. Barnhill, Jr. “We achieved these results while purchases and margins from our major customer, a tier one carrier, declined. This decline, and our expectations for this customer, are further explained in our Business Outlook discussion below. Excluding this customer’s purchases, our sales grew 22%.
“We are accelerating our strategies to continue the transformation of TESSCO into an innovative leader that offers the product and value chain solutions for deploying, using and selling next-generation networks to a diversified base of customers. Over the past several years, we have intentionally and successfully focused on broadening our addressable market by leveraging the convergence of wireless and the internet, and architecting and delivering the solutions that help our customers navigate the challenges and opportunities being created. Today, our support offering extends from mobility devices to carrier, public and private network systems. Market penetration of the smart phone should generate increased demand for smart phone device accessories and the systems they operate on.
“As one example of our offer expansion, we soon expect a formal announcement that GE Transportation Intelligence Control Systems and TESSCO have formed a strategic product development partnership for positive train control solutions for North American railroads. We have also recently expanded our offer to include cellular and broadband base station radios. These two major initiatives reflect the success of our transformation and will drive significant opportunities for developing new customers, in new markets and revenue generation.”
Third-Quarter and Nine-Month Fiscal 2011 Financial Results
For its fiscal 2011 third quarter, TESSCO reported revenue of $168 million and net income of $3.0 million, or $0.38 per diluted share. These results compare to revenue of $150 million and net income of $2.9 million, or $0.37 per diluted share, in the prior-year quarter. EBITDA* totaled $5.5 million, or $0.69 per diluted share, in the third quarter as compared to $5.9 million, or $0.76 per diluted share, in the prior-year quarter. Operating margin was 2.6 percent in the third quarter of fiscal 2011 compared to 3.2 percent in the prior-year quarter.
For the nine months ended December 26, 2010, the company reported revenues of $475 million and net income of $8.4 million, or $1.07 per diluted share. These results compare to revenues of $391 million and net income of $7.4 million, or $0.97 per diluted share, in the first nine months of fiscal 2010. EBITDA* for the first nine months of fiscal 2011 totaled $16.6 million, or $2.11 per share, compared to $15.5 million, or $2.02 per share, for the first nine months of fiscal 2010.
As of December 26, 2010, the company’s cash balance totaled $7.3 million and there was no balance outstanding on the revolving line of credit.
Business Outlook
As our largest customer, a tier one cellular carrier, prepared for the loss of iPhoneR exclusivity in the U.S., it reduced its accessory purchases from TESSCO and exerted significant pricing pressure on us. As a result, our gross margins declined in the third quarter, impacting our bottom line. Although we had anticipated the potential for change and have been taking actions to address its impact, the sales and margin impact came sooner and was greater than expected.
We expect to face continued lower volumes and growing pricing pressure from this customer. In addition, based on recent communications from the customer, we also face planned business model changes from them. The lower volumes and pricing pressure will put pressure on our bottom line, and the planned business model changes put future business with this customer at risk. As we have disclosed, the nature of our business is that our relationships with most customers and suppliers, including this customer, typically contain no ongoing purchase or sale obligations and are terminable by either party upon relatively short notice.
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 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.
Based on our expectations that the difficult trends with our largest customer will continue, but also considering our major market opportunities, we are revising our guidance for fiscal 2011. The company now believes that earnings per share for the fiscal year ending March 27, 2011 will be in the range of $1.20 to $1.27.
Quarterly Cash Dividend
The company will continue its quarterly dividend program with another $0.10 per common share cash dividend payable on March 2, 2011, to holders of record on February 16, 2011. 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.
Stock Buyback Program
During the third quarter of fiscal 2011, the company did not repurchase any shares under its stock buyback program. As of December 26, 2010, up to 88,163 shares remained available under this program for repurchase in the open market, by block purchase, or through negotiated transactions, or possibly other transactions managed by broker-dealers. Purchases are funded from working capital and/or our revolving line of credit facility. No timetable has been set for the completion of the program.
Third-Quarter-2011 Conference Call
TESSCO will hold a conference call to discuss its fiscal third-quarter-2011 results on Wednesday, January 19, 2011 at 10:00 a.m. EST. To participate in the live call by telephone, dial 866.543.6405 (domestic) or 617.213.8897 (international) and reference conference ID #33192253. A live webcast of the conference call will also be available at: http://www.tessco.com/go/pressroom.
For those who cannot listen to the live broadcast, the webcast will be archived on TESSCO’s website. A telephone replay of the call will also be available beginning at approximately 1:00 p.m. EST on January 19, 2011 until 5:00 p.m. EST on January 26, 2011. To listen to the telephone replay, dial 888.286.8010 (domestic) or 617 801.6888 (international) and enter conference ID #98929192.
*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
Positioned as Your Total Source®, TESSCO Technologies (NASDAQ:TESS) architects and delivers innovative product and value chain solutions to support wireless systems. TESSCO works closely with its customers to solve their requirement of on-time, reliable and productive voice, data and video system deployment and support.
The convergence of wireless and the internet is revolutionizing the way we live and work. New applications and systems are unlocking human potential at an unprecedented rate. TESSCO is there and is committed to delivering, fast and complete, the needs of wireless system operators, program managers, contractors, utility, transportation, enterprise and government organizations and resellers.
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.
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TESSCO Technologies Incorporated |
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| Consolidated Statements of Income (Unaudited) | |||||||||||||||
| Fiscal Quarters Ended | Nine Months Ended | ||||||||||||||
| December 26, | September 26, | December 27, | December 26, | December 27, | |||||||||||
| 2010 | 2010 | 2009 | 2010 | 2009 | |||||||||||
| Revenues | $ | 167,940,000 | $ | 165,026,400 | $ | 149,721,200 | $ | 474,919,000 | $ | 391,476,200 | |||||
| Cost of goods sold | 134,137,000 | 128,256,400 | 116,932,800 | 371,996,200 | 298,058,700 | ||||||||||
| Gross profit | 33,803,000 | 36,770,000 | 32,788,400 | 102,922,800 | 93,417,500 | ||||||||||
| Selling, general and administrative expenses | 29,465,800 | 31,203,600 | 27,939,700 | 89,581,100 | 81,023,400 | ||||||||||
| Income from operations | 4,337,200 | 5,566,400 | 4,848,700 | 13,341,700 | 12,394,100 | ||||||||||
|
Interest, net |
118,900 | 129,800 | 90,600 | 326,500 | 276,200 | ||||||||||
| Income before provision for income taxes | 4,218,300 |
|
5,436,600 | 4,758,100 | 13,015,200 | 12,117,900 | |||||||||
| Provision for income taxes | 1,257,100 | 2,090,900 | 1,850,900 | 4,638,800 | 4,706,100 | ||||||||||
| Net income | $ | 2,961,200 | $ | 3,345,700 | $ | 2,907,200 | $ | 8,376,400 | $ | 7,411,800 | |||||
| Basic earnings per share | $ | 0.39 | $ | 0.44 | $ | 0.39 | $ | 1.11 | $ | 1.01 | |||||
| Diluted earnings per share | $ | 0.38 | $ | 0.43 | $ | 0.37 | $ | 1.07 | $ | 0.97 | |||||
| TESSCO Technologies Incorporated | ||||||||
| Consolidated Balance Sheets | ||||||||
| December 26, 2010 | March 28, 2010 | |||||||
| (unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 7,297,900 | $ | 7,658,700 | ||||
| Trade accounts receivable, net | 79,251,500 | 60,675,000 | ||||||
| Product inventory | 49,848,500 | 44,991,500 | ||||||
| Deferred tax assets | 4,615,000 | 4,615,000 | ||||||
| Prepaid expenses and other current assets | 2,894,000 | 1,597,000 | ||||||
| Total current assets | 143,906,900 | 119,537,200 | ||||||
| Property and equipment, net | 21,761,100 | 20,679,900 | ||||||
| Goodwill, net | 11,684,700 | 9,017,700 | ||||||
| Other long-term assets | 1,955,200 | 2,111,900 | ||||||
| Total assets | $ | 179,307,900 | $ | 151,346,700 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Trade accounts payable | $ | 82,132,200 | $ | 59,548,900 | ||||
| Payroll, benefits and taxes | 7,528,500 | 8,974,200 | ||||||
| Income and sales tax liabilities | 2,960,100 | 2,528,000 | ||||||
| Accrued expenses and other current liabilities | 1,454,800 | 1,312,900 | ||||||
| Revolving line of credit | -- | -- | ||||||
| Current portion of long-term debt | 383,200 | 380,000 | ||||||
| Total current liabilities | 94,458,800 | 72,744,000 | ||||||
| Deferred tax liabilities | 3,650,800 | 3,650,800 | ||||||
| Long-term debt, net of current portion | 3,031,500 | 3,328,000 | ||||||
| Other long-term liabilities | 1,581,900 | 1,978,700 | ||||||
| Total liabilities | 102,723,000 | 81,701,500 | ||||||
| Shareholders’ Equity: | ||||||||
| Preferred stock | -- | -- | ||||||
| Common stock | 83,500 | 81,500 | ||||||
| Additional paid-in capital | 38,944,100 | 36,937,700 | ||||||
| Treasury stock, at cost | (44,051,900 | ) | (42,819,400 | ) | ||||
| Retained earnings | 81,655,400 | 75,543,000 | ||||||
| Accumulated other comprehensive loss | (46,200 | ) | (97,600 | ) | ||||
| Total shareholders’ equity | 76,584,900 | 69,645,200 | ||||||
| Total liabilities and shareholder’s equity | $ | 179,307,900 | $ | 151,346,700 | ||||
| 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 26, | September 26, | December 27, | December 26, | December 27, | |||||||||||
| 2010 | 2010 | 2009 | 2010 | 2009 | |||||||||||
| Net income | $ | 2,961,200 | $ | 3,345,700 | $ | 2,907,200 | $ | 8,376,400 | $ | 7,411,800 | |||||
| Add: | |||||||||||||||
| Provision for income taxes | 1,257,100 | 2,090,900 | 1,850,900 | 4,638,800 | 4,706,100 | ||||||||||
| Interest, net | 118,900 | 129,800 | 90,600 | 326,500 | 276,200 | ||||||||||
| Depreciation and amortization | 1,141,600 | 1,085,200 | 1,061,700 | 3,240,400 | 3,086,000 | ||||||||||
| EBITDA | $ | 5,478,800 | $ | 6,651,600 | $ | 5,910,400 | $ | 16,582,100 | $ | 15,480,100 | |||||
| EBITDA per diluted share | $ | 0.69 | $ | 0.85 | $ | 0.76 | $ | 2.11 | $ | 2.02 | |||||
| TESSCO Technologies Incorporated | ||||||||||||||||
| Supplemental Revenue and Gross Profit Results Summary (Unaudited) | ||||||||||||||||
| Mobile | Installation, | |||||||||||||||
| Network | Devices and | Test and | ||||||||||||||
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(Amounts in Thousands) |
Infrastructure | Accessories | Maintenance | Total | ||||||||||||
| Quarter Ended December 26, 2010: | ||||||||||||||||
| Commercial/Government Revenue: | ||||||||||||||||
| Public Carriers and Network Operators | $ | 16,874 | $ | 647 | $ | 6,024 | $ | 23,545 | ||||||||
| Resellers | 21,522 | 87,894 | 2,113 | 111,529 | ||||||||||||
| Users and Governments | 19,229 | 4,051 | 6,486 | 29,766 | ||||||||||||
| Total Commercial/Government Revenue | 57,625 | 92,592 | 14,623 | 164,840 | ||||||||||||
| Consumer Revenue | -- | 3,100 | -- | 3,100 | ||||||||||||
| Total Revenue | $ | 57,625 | $ | 95,692 | $ | 14,623 | $ | 167,940 | ||||||||
| Commercial/Government Gross Profit: | ||||||||||||||||
| Public Carriers and Network Operators | $ | 4,250 | $ | 164 | $ | 1,043 | $ | 5,457 | ||||||||
| Resellers | 6,282 | 13,023 | 549 | 19,854 | ||||||||||||
| Users and Governments | 5,115 | 1,030 | 1,255 | 7,400 | ||||||||||||
| Total Commercial/Government Gross Profit | 15,647 | 14,217 | 2,847 | 32,711 | ||||||||||||
| Consumer Gross Profit | -- | 1,092 | -- | 1,092 | ||||||||||||
| Total Gross Profit | $ | 15,647 | $ | 15,309 | $ | 2,847 | $ | 33,803 | ||||||||
| Change from the Quarter Ended December 27, 2009: | ||||||||||||||||
| Commercial/Government Revenue: | ||||||||||||||||
| Public Carriers and Network Operators | 23.1 | % | 14.4 | % | 108.9 | % | 37.2 | % | ||||||||
| Resellers | 17.6 | % | 12.3 | % | 24.8 | % | 13.5 | % | ||||||||
| Users and Governments | 12.6 | % | 11.8 | % | (35.1 | %) | (3.0 | %) | ||||||||
| Total Commercial/Government Revenue | 17.4 | % | 12.3 | % | 0.3 | % | 12.8 | % | ||||||||
| Consumer Revenue | -- | (13.4 | %) | -- | (13.4 | %) | ||||||||||
| Total Revenue | 17.4 | % | 11.2 | % | 0.3 | % | 12.2 | % | ||||||||
| Commercial/Government Gross Profit: | ||||||||||||||||
| Public Carriers and Network Operators | 34.9 | % | 15.2 | % | 54.6 | % | 37.5 | % | ||||||||
| Resellers | 32.7 | % | (14.2 | %) | 42.7 | % | (2.2 | %) | ||||||||
| Users and Governments | 17.4 | % | 0.5 | % | (33.3 | %) | 1.9 | % | ||||||||
| Total Commercial/Government Gross Profit | 27.8 | % | (13.1 | %) | (3.2 | %) | 3.7 | % | ||||||||
| Consumer Gross Profit | -- | (13.0 | %) | -- | (13.0 | %) | ||||||||||
| Total Gross Profit | 27.8 | % | (13.1 | %) | (3.2 | %) | 3.1 | % | ||||||||
| Change from the Quarter Ended September 26, 2010: | ||||||||||||||||
| Commercial/Government Revenue: | ||||||||||||||||
| Public Carriers and Network Operators | (11.4 | %) | (4.4 | %) | 43.9 | % | (1.6 | %) | ||||||||
| Resellers | (12.4 | %) | 4.5 | % | 21.6 | % | 1.0 | % | ||||||||
| Users and Governments | 5.1 | % | 18.0 | % | 26.7 | % | 10.8 | % | ||||||||
| Total Commercial/Government Revenue | (7.0 | %) | 4.9 | % | 32.4 | % | 2.2 | % | ||||||||
| Consumer Revenue | -- | (18.2 | %) | -- | (18.2 | %) | ||||||||||
| Total Revenue | (7.0 | %) | 4.0 | % | 32.4 | % | 1.8 | % | ||||||||
| Commercial/Government Gross Profit: | ||||||||||||||||
| Public Carriers and Network Operators | (5.2 | %) | 1.6 | % | 23.9 | % | (0.6 | %) | ||||||||
| Resellers | (0.2 | %) | (16.4 | %) | 12.1 | % | (11.2 | %) | ||||||||
| Users and Governments | 5.1 | % | 8.6 | % | (30.1 | %) | (2.8 | %) | ||||||||
| Total Commercial/Government Gross Profit | 0.0 | % | (14.8 | %) | (9.0 | %) | (7.7 | %) | ||||||||
| Consumer Gross Profit | -- | (16.9 | %) | -- | (16.9 | %) | ||||||||||
| Total Gross Profit | 0.0 | % | (14.9 | %) | (9.0 | %) | (8.1 | %) | ||||||||
| Mobile | Installation, | |||||||||||||||
| Network | Devices and | Test and | ||||||||||||||
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(Amounts in Thousands) |
Infrastructure | Accessories | Maintenance | Total | ||||||||||||
| Nine Months Ended December 26, 2010: | ||||||||||||||||
| Commercial/Government Revenue: | ||||||||||||||||
| Public Carriers and Network Operators | $ | 53,531 | $ | 1,808 | $ | 13,835 | $ | 69,174 | ||||||||
| Resellers | 66,878 | 240,039 | 5,758 | 312,675 | ||||||||||||
| Users and Governments | 53,874 | 12,260 | 16,276 | 82,410 | ||||||||||||
| Total Commercial/Government Revenue | 174,283 | 254,107 | 35,869 | 464,259 | ||||||||||||
| Consumer Revenue | -- | 10,660 | -- | 10,660 | ||||||||||||
| Total Revenue | $ | 174,283 | $ | 264,767 | $ | 35,869 | $ | 474,919 | ||||||||
| Commercial/Government Gross Profit: | ||||||||||||||||
| Public Carriers and Network Operators | $ | 12,697 | $ | 460 | $ | 2,686 | $ | 15,843 | ||||||||
| Resellers | 18,259 | 41,374 | 1,506 | 61,139 | ||||||||||||
| Users and Governments | 14,436 | 3,232 | 4,566 | 22,234 | ||||||||||||
| Total Commercial/Government Gross Profit | 45,392 | 45,066 | 8,758 | 99,216 | ||||||||||||
| Consumer Gross Profit | -- | 3,707 | -- | 3,707 | ||||||||||||
| Total Gross Profit | $ | 45,392 | $ | 48,773 | $ | 8,758 | $ | 102,923 | ||||||||
| Change from Nine Months Ended December 27, 2009: | ||||||||||||||||
| Commercial/Government Revenue: | ||||||||||||||||
| Public Carriers and Network Operators | 39.9 | % | 15.1 | % | 75.1 | % | 44.9 | % | ||||||||
| Resellers | 22.3 | % | 27.3 | % | 4.3 | % | 25.7 | % | ||||||||
| Users and Governments | 25.3 | % | 18.5 | % | (47.2 | %) | (2.1 | %) | ||||||||
| Total Commercial/Government Revenue | 28.2 | % | 26.7 | % | (18.9 | %) | 21.9 | % | ||||||||
| Consumer Revenue | -- | (1.0 | %) | -- | (1.0 | %) | ||||||||||
| Total Revenue | 28.2 | % | 25.3 | % | (18.9 | %) | 21.3 | % | ||||||||
| Commercial/Government Gross Profit: | ||||||||||||||||
| Public Carriers and Network Operators | 37.6 | % | 13.3 | % | 38.9 | % | 37.0 | % | ||||||||
| Resellers | 21.3 | % | 1.1 | % | 15.5 | % | 6.8 | % | ||||||||
| Users and Governments | 23.3 | % | 5.6 | % | (29.5 | %) | 4.7 | % | ||||||||
| Total Commercial/Government Gross Profit | 26.2 | % | 1.6 | % | (9.8 | %) | 10.2 | % | ||||||||
| Consumer Gross Profit | -- | 10.8 | % | -- | 10.8 | % | ||||||||||
| Total Gross Profit | 26.2 | % | 2.2 | % | (9.8 | %) | 10.2 | % | ||||||||