Company Makes Important Progress on
Three-Pillar Strategy
TESSCO TECHNOLOGIES INCORPORATED (NASDAQ: TESS) today
reported financial results for its third quarter of fiscal 2021,
ended December 27, 2020.
Third-Quarter Highlights
As a result of the sale of retail inventory and other assets
(“Retail business assets”) to Voice Comm, LLC in the third quarter,
and the Company’s corresponding exit from the Retail business, the
Company is now presenting earnings both from continuing and
discontinued operations. The income from discontinued operations in
the third quarter of fiscal 2021 was primarily driven by the $3.0
million gain from the sale of the Retail business assets. The loss
from continuing operations includes a $3.0 million expense related
to the consent solicitation that concluded in December.
The financial results reflected below do not fully represent the
former Retail segment stand-alone operating net profit, as the
results reported within Income (loss) from discontinued operations
include only certain costs that are directly attributable to this
former segment and exclude certain corporate and operational costs
that may have been previously allocated for each period.
Third Quarter FY 2021
Third Quarter FY 2020
Second Quarter FY 2021
Revenue from continuing operations
$99.2M
$100.8M
$88.9M
Net loss from continuing operations1
($5.7M)
($2.1M)
($2.9M)
Loss per share from continuing
operations1
($0.66)
($0.24)
($0.34)
Earnings (loss) from discontinued
operations2
$4.8M
($2.9M)
$2.7M
Earnings (loss) per share from
discontinued operations2
$0.55
($0.35)
$0.31
Consolidated net loss3
($0.9M)
($5.0M)
($0.3M)
Consolidated loss per share3
($0.11)
($0.59)
($0.03)
1 The third quarter fiscal 2021 loss from continuing operations
includes $3.0 million in incremental expenses related to the
consent solicitation initiated by a shareholder group late in the
second fiscal quarter of fiscal 2021 and continuing well into the
third quarter.
2 The third quarter fiscal 2021 earnings from discontinued
operations includes a $3.0 million gain on the sale of the
Company’s Retail business assets. The third quarter fiscal 2020
loss from discontinued operations includes a $2.6 million charge
for a goodwill impairment related to the Retail business.
3 The third quarter fiscal 2021 consolidated loss includes $3.0
million in incremental expenses related to the consent solicitation
as well as a $3.0 million gain on the sale of the Company’s Retail
business assets. The third quarter fiscal year 2020 consolidated
loss includes a $2.6 million charge for a goodwill impairment.
Third-Quarter Revenue by Market
(Continuing Operations):
Year over Year Q3 FY 2021 vs. Q3 FY
2020
Sequential Q3 FY 2021 vs. Q2 FY
2021
Public Carrier
13.6%
31.5%
VAR and Integrator
(10.7)%
0.1%
Total
(1.6)%
11.6%
“In the third quarter, we continued to make substantive progress
on all aspects of our three-pillar transformation strategy,” said
Sandip Mukerjee, Tessco’s President and Chief Executive Officer.
“In line with our strategy, we completed the sale of our Retail
business assets, which now allows us to be 100% focused on the
higher-margin, faster-growing wireless infrastructure construction
industry. We are now fully dedicated to providing our full range of
capabilities and expertise to remove complexities and challenges
faced by customers in the wireless infrastructure space.
“We have demonstrated a continued ability to capture share in
the public carrier ecosystem, where sales grew 14% year over year.
As the world begins to emerge from the worst of the
pandemic-related slowdown, we expect to see construction projects
accelerate, along with 5G-related growth, in the current calendar
year.
“The remainder of our Commercial business, whether direct or
through VARs and integrators, was uneven as some sectors
experienced a return to growth while others continued to be slowed
by the pandemic. The utility sector continues to rebound and we
leveraged our vertically focused sales force to drive sequential
revenue growth of 48% in this sector. We are seeing a slower return
to normal for public venues and state and local municipalities,
many of which have reduced their infrastructure investments.
“Our Ventev business continues to focus on new product
development and we recently secured two additional patents for
innovative Wi-Fi applications. Ventev’s relationship with Cisco
that we announced in the second quarter has also gained traction,
generating numerous wins with new customers, particularly for
community wireless and industrial IoT projects.
“The third pillar of our strategy is focused on new, recurring
revenue streams, and we saw continued progress in the third
quarter. Our new software capabilities for managing devices have
entered customer beta testing and we expect to move closer to a
formal launch in the early part of fiscal year 2022. Additionally,
we have taken steps to grow our value-added services in a
substantive way, strengthening our position as the provider of the
industry’s most extensive array of design services.
“Our progress in each of these areas is positioning us to take
full advantage of what is widely recognized as a
once-in-a-generation opportunity in the wireless industry,
resulting from the unprecedented and concurrent rollout of new
technologies, including 5G, private LTE/CBRS and IoT,” concluded
Mukerjee.
Third-Quarter 2021 Financial Results
For the fiscal 2021 third quarter, revenues from continuing
operations totaled $99.2 million, compared with $100.8 million for
the third quarter of fiscal 2020. These revenue amounts exclude
third-quarter 2021 revenues of $27.0 million from the Company’s
retail business, now identified as discontinued operations, as
compared to $38.7 million in revenues associated with the Retail
business in the prior year quarter.
Gross profit from continuing operations was $17.3 million for
the third quarter of fiscal 2021, compared with $19.6 million for
the same quarter of fiscal 2020. Gross margin from continuing
operations was 17.4% of revenue for the third quarter of fiscal
2021, compared with 19.5% in the third quarter of last year. Lower
year-over-year gross profit and gross margin were due to product
and customer mix, primarily due to a larger portion of
third-quarter fiscal 2021 revenue coming from the public carrier
market, which has lower gross margins as compared to the VAR and
Integrator market.
Third-quarter selling, general and administrative (SG&A)
expenses from continuing operations totaled $23.6 million, as
compared with $22.0 million in the prior-year quarter.
In the third quarter of fiscal 2021, loss from continuing
operations before income taxes was $6.4 million compared with $2.7
million in the third quarter of fiscal 2020.
The third quarter fiscal 2021 SG&A and loss from continuing
operations before income taxes both include $3.0 million in
incremental expenses related to the consent solicitation that
concluded during the third quarter.
Loss from continuing operations was $5.7 million, or $0.66 per
share, in the third quarter of 2021 versus a loss of $2.1 million,
or $0.24 per share, in the year-ago quarter.
Income from discontinued operations was $4.8 million in the
third quarter of 2021 versus a loss from discontinued operations of
$2.9 million in the year-ago quarter. The third-quarter fiscal 2021
income from discontinued operations includes a pre-tax gain of $3.0
million from the sales of the Company’s Retail business assets. The
third-quarter fiscal 2020 loss from discontinued operations
includes a pre-tax charge for a goodwill impairment of $2.6
million.
Consolidated (continuing and discontinued operations) net loss
and loss per share were $0.9 million and $0.11, respectively, for
the third quarter of fiscal 2021. This compares with consolidated
net loss of $5.0 million and diluted loss per share of $0.59, for
the prior-year third quarter.
EBITDA and EBITDA per diluted share from continuing operations
were a loss of $5.4 million and $0.62, respectively, for the third
quarter of fiscal 2021. This compares with a loss of $1.6 million
and $0.18, respectively, for the third quarter of fiscal 2020.
Third-Quarter Fiscal 2021 Conference Call
Management will host a conference call to discuss third-quarter
fiscal year 2021 results and business outlook tomorrow, Tuesday,
February 2, 2021 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 #2128737.
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 diluted 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.
EBITDA, EBITDA per diluted share, Adjusted EBITDA and Adjusted
EBITDA per share are not recognized terms under GAAP, and EBITDA
and Adjusted 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,
EBITDA and EBITDA per diluted share, are intended to be measures 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 customers in the wireless infrastructure
ecosystem. The Company was founded more than 30 years ago with a
commitment to deliver industry-leading products, knowledge,
solutions, and customer service. Tessco supplies products 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 29, 2020, 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: the impact and results of any
new or continued activism activities by Robert B. Barnhill, Jr.
and/or other activist investors; 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; health epidemics or pandemics or other
outbreaks or events, or national or world events or disasters
beyond our control; 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
Loss (Unaudited)
Fiscal Quarters Ended
Nine Months Ended
December 27, 2020
December 29, 2019
September 27, 2020
December 27, 2020
December 29, 2019
Revenues
$
99,237,600
$
100,844,000
$
88,892,400
$
284,607,600
$
303,174,700
Cost of goods sold
81,921,900
81,196,300
71,771,200
233,718,000
243,121,200
Gross profit
17,315,700
19,647,700
17,121,200
50,889,600
60,053,500
Selling, general and
administrative expenses
23,606,800
21,994,800
20,787,800
65,927,100
68,457,600
Restructuring charge
—
—
—
—
488,000
Loss from operations
(6,291,100
)
(2,347,100
)
(3,666,600
)
(15,037,500
)
(8,892,100
)
Interest expense, net
151,200
367,900
105,900
367,800
911,700
Loss from continuing operations
before benefit from income tax
(6,442,300
)
(2,715,000
)
(3,772,500
)
(15,405,300
)
(9,803,800
)
Benefit from income taxes
(740,400
)
(641,000
)
(824,300
)
(1,886,600
)
(2,177,600
)
Net loss from continuing
operations
$
(5,701,900
)
$
(2,074,000
)
$
(2,948,200
)
$
(13,518,700
)
$
(7,626,200
)
Income (loss) from discontinued
operations, net of taxes
4,787,500
(2,947,400
)
2,681,300
7,706,000
134,000
Net loss
$
(914,400
)
$
(5,021,400
)
$
(266,900
)
$
(5,812,700
)
$
(7,492,200
)
Basic and diluted (loss) income
per share
Continuing operations
$
(0.66
)
$
(0.24
)
$
(0.34
)
$
(1.56
)
$
(0.90
)
Discontinued operations
$
0.55
$
(0.35
)
$
0.31
$
0.89
$
0.02
Consolidated operations
$
(0.11
)
$
(0.59
)
$
(0.03
)
$
(0.67
)
$
(0.88
)
Basic weighted-average common
shares outstanding
8,699,937
8,541,020
8,656,877
8,658,205
8,517,838
Effect of dilutive options and
other equity instruments
—
—
—
—
—
Diluted weighted-average common
shares outstanding
8,699,937
8,541,020
8,656,877
8,658,205
8,517,838
TESSCO Technologies
Incorporated
Consolidated Balance
Sheets
December 27,
March 29,
2020
2020
(unaudited)
(unaudited, recast)
ASSETS
Current assets:
Cash and cash equivalents
$
234,200
$
50,000
Trade accounts receivable,
net
77,856,500
82,868,400
Product inventory, net
52,461,700
50,298,100
Prepaid expenses and other
current assets
15,054,800
11,707,500
Current portion of assets held
for sale
2,684,200
18,849,900
Total current assets
148,291,400
163,773,900
Property and equipment, net
12,649,100
13,433,700
Intangible assets, net
16,412,000
11,157,400
Deferred tax assets
758,100
3,032,500
Lease asset - right of use
11,937,100
13,949,800
Other long-term assets
5,299,200
3,361,400
Total assets
$
195,346,900
$
208,708,700
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Trade accounts payable
$
65,907,000
$
75,512,600
Payroll, benefits and taxes
7,577,100
4,258,300
Income and sales tax
liabilities
610,400
450,800
Accrued expenses and other
current liabilities
3,040,800
4,244,400
Revolving line of credit
—
25,563,900
Lease liability, current
2,577,700
2,579,200
Total current liabilities
79,713,000
112,609,200
Revolving line of credit
26,001,400
—
Non-current lease liability
9,546,900
11,481,100
Other non-current liabilities
868,200
915,700
Total liabilities
116,129,500
125,006,000
Shareholders’ equity:
Preferred stock
—
—
Common stock
103,300
101,400
Additional paid-in capital
66,765,600
65,318,500
Treasury stock
(62,800
)
(58,496,200
)
Retained earnings
12,411,300
76,779,000
Total shareholders’ equity
79,217,400
83,702,700
Total liabilities and
shareholders’ equity
$
195,346,900
$
208,708,700
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 27, 2020
December 29, 2019
September 27, 2020
December 27, 2020
December 29, 2019
Net loss from continuing
operations
$
(5,701,900
)
$
(2,074,000
)
$
(2,948,200
)
$
(13,518,700
)
$
(7,626,200
)
Add:
Benefit from income taxes
(740,400
)
(641,000
)
(824,300
)
(1,886,600
)
(2,177,600
)
Interest expense, net
151,200
367,900
105,900
367,800
911,700
Depreciation and amortization
878,600
795,600
1,028,500
3,135,100
2,870,200
EBITDA
$
(5,412,500
)
$
(1,551,500
)
$
(2,638,100
)
$
(11,902,400
)
$
(6,021,900
)
Add:
Stock based compensation
331,000
212,700
316,700
959,600
943,400
EBITDA, adjusted
$
(5,081,500
)
$
(1,338,800
)
$
(2,321,400
)
$
(10,942,800
)
$
(5,078,500
)
EBITDA per diluted
share
(0.62
)
(0.18
)
$
(0.30
)
$
(1.37
)
$
(0.71
)
Adjusted EBITDA per diluted
share
$
(0.58
)
$
(0.16
)
$
(0.27
)
$
(1.26
)
$
(0.60
)
TESSCO Technologies
Incorporated
Supplemental Results Summary
(in thousands) (Unaudited)
Three Months Ended
Growth Rates Compared
to
December 27,2020
December 29, 2019
September 27, 2020
Prior Year Period
Prior Period
Market Revenues
Public carrier
$
42,923
$
37,793
$
32,632
13.6
%
31.5
%
VAR and integrators
56,315
63,051
56,260
(10.7)
%
0.1
%
Total revenues
$
99,238
$
100,844
$
88,892
(1.6)
%
11.6
%
Market Gross Profit
Public carrier
$
4,780
$
4,508
$
3,570
6.0
%
33.9
%
VAR and integrators
12,536
15,139
13,551
(17.2)
%
(7.5)
%
Total gross profit
$
17,316
$
19,647
$
17,121
(11.9)
%
1.1
%
% of revenues
17.4%
19.5%
19.3%
TESSCO Technologies
Incorporated
Supplemental Results Summary
(in thousands) (Unaudited)
Nine Months Ended
Growth Rates
December 27, 2020
December 29, 2019
Compared to Prior Year
Period
Market Revenues
Public carrier
$
114,810
$
110,448
3.9
%
VAR and integrators
169,798
192,727
(11.9)
%
Total revenues
$
284,608
$
303,175
(6.1)
%
Market Gross Profit
Public carrier
$
12,078
$
13,621
(11.3)
%
VAR and integrators
38,812
46,432
(16.4)
%
Total gross profit
$
50,890
$
60,053
(15.3)
%
% of revenues
17.9%
19.8%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210201005911/en/
TESSCO Technologies Incorporated Aric Spitulnik Chief Financial
Officer 410-229-1419 spitulnik@tessco.com or David Calusdian Sharon
Merrill Associates 617-542-5300 TESS@investorrelations.com
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