TESSCO Announces 2nd Quarter Revenue of $197 Million, EPS of $0.64

TESSCO Announces 2ndQuarter Revenue of $197 Million, EPS of $0.64

  • 33% total and 21% core market revenue growth

  • Quarterly EPS grows 45% to a record $0.64

  • Quarterly EBITDA* per share grows 39% to a record $1.21

  • FY13 EPS guidance updated to $1.90 to $2.15

  • $0.18 per share quarterly dividend date set

HUNT VALLEY, Md.--(BUSINESS WIRE)-- TESSCO Technologies Incorporated (NAS: TESS) , a leading provider of the product and value chain solutions required to build, use and maintain wireless broadband systems, today announced its results for the second quarter of fiscal year 2013, ended September 30, 2012.


"During the second quarter we greatly accelerated our revenue and profitability growth; compared to last year's second quarter, revenue increased 21 percent in our core markets and 33 percent overall, and EPS grew 45 percent," commented Chairman and CEO Robert Barnhill.

"We are very pleased with the strong growth from our core markets. On a sequential basis, revenues and profits from our third-party (3PL) logistics business with a Tier 1 carrier declined, and by the end of this fiscal year we expect to have completely transitioned out of this business. While the revenues from this customer are significant, the profit contribution margin remains low. Our strong results this quarter illustrate how, as we exit the 3PL business with this customer, we are realigning our resources and intensifying our focus on TESSCO's commercial and retail markets, enabling us to profit from the immense opportunities in wireless broadband.

"Due to this quarter's strong results we are raising the bottom end of our guidance range for fiscal 2013. We now expect full-year diluted earnings per share to be in the range of $1.90 to $2.15, compared to our previous $1.80 to $2.15 guidance. We believe our leverage of the many opportunities being created by the convergence of wireless and the Internet will enable us to continue to grow revenues and profits from our core markets."

Second-Quarter Fiscal 2013 Financial Results

For the company's fiscal 2013 second quarter, revenue reached $197.2 million, a 33 percent increase compared to last year's second quarter. Comparing the results in our core markets - i.e., our total business excluding Tier 1 carrier retail customers - revenues grew by $22.7 million, or 21 percent, compared to the prior year quarter. The public systems operator market produced 29 percent revenue growth; the commercial dealer & reseller market produced 14 percent revenue growth; the private & government systems market produced 10 percent revenue growth; and the retailer, dealer agent & Tier 2/3 carrier market produced 35 percent revenue growth. The Tier 1 carrier retail market produced 65 percent revenue growth, mostly attributable to the temporary expansion of our low-margin 3PL relationship with the major Tier 1 carrier customer.

In the second quarter of fiscal 2013, gross profit was $38.6 million, a 14 percent increase compared to last year's second quarter. In our core markets gross profit was$32.2 million, a 15 percent increase. The public systems operator market produced 31 percent gross profit growth; the commercial dealer & reseller market produced 9 percent gross profit growth; the private & government systems market produced 5 percent gross profit growth; and the retailer, dealer agent & Tier 2/3 carrier market produced 28 percent gross profit growth. The Tier 1 carrier retail market produced 6 percent gross profit growth. Gross profit from the low-margin 3PL relationship with the major Tier 1 carrier customer was essentially flat, so this growth was from sales to other Tier 1 carriers.

Selling general and administrative expenses increased by $1.7 million, or 6 percent compared to last year's second quarter.

EBITDA* totaled $10.0 million, or $1.21 per diluted share, in the second quarter of 2013 as compared to $7.0 million, or $0.87 per diluted share, in the prior-year quarter.

Net income and diluted earnings per share totaled $5.3 million and $0.64 in the second quarter of fiscal 2013, respectively, as compared to $3.5 million and $0.44 in the prior year quarter, respectively.

For the first half of fiscal 2013, TESSCO reported revenues of $389.7 million and net income of $9.5 million, or $1.15 per diluted share. These results compare to revenues of $312.4 million and net income of $8.1 million, or $1.01 per diluted share, for the first half of fiscal 2012. EBITDA* for the first half of fiscal 2013 totaled $18.2 million, or $2.20 per share, compared to $15.7 million, or $1.96 per share, for the first half of fiscal 2012.

As of September 30, 2012, TESSCO's cash balance totaled $17.0 million and there was no balance outstanding on the revolving line of credit.

Quarterly Cash Dividend

Our Board of Directors has declared a cash dividend of $0.18 per common share payable on November 28, 2012 to holders of record on November 14, 2012. Any future declaration of dividends, and the establishment of record and payment dates, is subject to further determinations of the Board of Directors.

Business Outlook

Based on our results in the first half of fiscal 2013 and our view of the current pipeline of business opportunities, we are raising the bottom end of our annual guidance and now expect that diluted earnings per share for fiscal 2013 will range from $1.90 to $2.15.

As described in various previous announcements, TESSCO's low-margin, third-party logistics relationship with its largest customer, a major Tier 1 carrier, began to transition from TESSCO in September 2012 as that customer began implementing a new supply chain business model. TESSCO expects the 3PL relationship to be fully terminated prior to the close of TESSCO's fiscal 2013, ending March 31, 2013. TESSCO expects that the transition will result in a significant reduction in overall revenues, but that the expected growth in other parts of its business combined with ongoing cost reduction efforts and resource re-alignment will lessen the impact on overall profits in fiscal 2013, and position TESSCO to focus totally on growing its core markets and productivity in fiscal 2014.

Forecasting future results is inherently difficult for any business, and actual results may differ materially from those forecasted. Moreover, our current expectations related to the transition of the supply chain relationship with our largest customer are based upon indications received from this customer, and actual events may differ materially. 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. Absent this supply chain relationship, we will, however, maintain the ability to sell our proprietary products to this customer.

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.

Second-Quarter Fiscal 2013 Conference Call

Management will host a conference call to discuss its second-quarter 2013 results on Thursday, November 1, 2012 at 10:00 a.m. ET. To participate in the conference call, please call 866-356-4281 (domestic call-in) or 617-597-5395 (international call-in) and reference code #86068949. 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 12:00 p.m. ET on November 1, 2012 until 11:59 p.m. ET on November 8, 2012 by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering confirmation #27523688. 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 (NAS: TESS) , is Your Total Source® for making wireless work. The convergence of wireless and the Internet is revolutionizing the way we live, work and play. New systems and applications are creating opportunities and challenges 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 broadband 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

Six Months Ended

September 30, 2012

July 1,

2012

September 25, 2011

September 30, 2012

September 25, 2011

Revenues

$

197,238,300

$

192,418,200

$

148,837,400

$

389,656,500

$

312,352,400

Cost of goods sold

158,613,300

156,925,000

114,847,500

315,538,300

241,162,100

Gross profit

38,625,000

35,493,200

33,989,900

74,118,200

71,190,300

Selling, general and administrative expenses

29,887,000

28,562,400

28,159,900

58,449,400

57,835,000

Income from operations

8,738,000

6,930,800

5,830,000

15,668,800

13,355,300

Interest , net

12,000

57,400

72,900

69,400

178,400

Income before provision for income taxes

8,726,000

6,873,400

5,757,100

15,599,400

13,176,900

Provision for income taxes

3,457,100

2,666,900

2,216,900

6,124,000

5,062,500

Net income

$

5,268,900

$

4,206,500

$

3,540,200

$

9,475,400

$

8,114,400

Basic earnings per share

$

0.66

$

0.53

$

0.46

$

1.19

$

1.05

Diluted earnings per share

$

0.64

$

0.51

$

0.44

$

1.15

$

1.01

TESSCO Technologies Incorporated

Consolidated Balance Sheets

September 30, 2012

April 1, 2012

(unaudited)

(audited)

ASSETS

Current Assets:

Cash and cash equivalents

$

16,985,900

$

18,211,600

Trade accounts receivable, net

93,744,500

88,748,200

Product inventory

76,289,800

53,360,300

Deferred tax assets

3,135,100

3,135,100

Prepaid expenses and other current assets

4,149,600

2,308,200

Total current assets

194,304,900

165,763,400

Property and equipment, net

22,999,100

22,905,700

Goodwill, net

11,684,700

11,684,700

Other long-term assets

2,095,200

2,143,900

Total assets

$

231,083,900

$

202,497,700

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Trade accounts payable

$

108,433,000

$

78,344,700

Payroll, benefits and taxes

8,467,600

17,211,600

Income and sales tax liabilities

2,253,400

3,137,000

Accrued expenses and other current liabilities

1,000,500

1,041,100

Revolving line of credit

--

--

Current portion of long-term debt

249,200

249,200

Total current liabilities

120,403,700

99,983,600

Deferred tax liabilities

2,243,500

2,243,500

Long-term debt, net of current portion

2,583,500

2,708,000

Other long-term liabilities

3,894,100

3,910,700

Total liabilities

129,124,800

108,845,800

Shareholders' Equity:

Preferred stock

--

--

Common stock

91,000

88,000

Additional paid-in capital

48,653,100

45,135,900

Treasury stock, at cost

(48,075,400

)

(46,276,400

)

Retained earnings

101,290,400

94,704,400

Accumulated other comprehensive loss

--

--

Total shareholders' equity

101,959,100

93,651,900

Total liabilities and shareholder's equity

$

231,083,900

$

202,497,700

TESSCO Technologies Incorporated

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

Fiscal Quarters Ended

Six Months Ended

September 30, 2012

July 1,

2012

September 25, 2011

September 30, 2012

September 25, 2011

Net income

$

5,268,900

$

4,206,500

$

3,540,200

$

9,475,400

$

8,114,400

Add:

Provision for income taxes

3,457,100

2,666,900

2,216,900

6,124,000

5,062,500

Interest, net

12,000

57,400

72,900

69,400

178,400

Depreciation and amortization

1,247,200

1,247,800

1,157,700

2,495,100

2,330,700

EBITDA

$

9,985,200

$

8,178,600

$

6,987,700

$

18,163,900

$

15,686,000

EBITDA per diluted share

$

1.21

$

0.99

$

0.87

$

2.20

$

1.96

TESSCO Technologies Incorporated

Supplemental Results Summary (in thousands) (Unaudited)

Three months ended September 30, 2012

Commercial Segment

Retail Segment

Total

Revenues

Public carrier, contractor & program manager market

$

25,811

$

-

$

25,811

Private carrier & government system market

34,264

-

34,264

Commercial dealer & reseller market

35,655

-

35,655

Retailer, dealer agent & tier 2/3 carrier market

-

36,363

36,363

Revenues, excluding Tier 1 carrier market

95,730

36,363

132,093

Tier 1 carrier market

-

65,145

65,145

Total revenues

95,730

101,508

197,238

Gross Profit

Public carrier, contractor & program manager market

5,635

-

5,635

Private carrier & government system market

9,238

-

9,238

Commercial dealer & reseller market

9,801

-

9,801

Retailer, dealer agent & tier 2/3 carrier market

-