TESSCO Announces Record Results For FY12; Quarterly Dividend Increased By 20%

TESSCO Technologies Incorporated (NASDAQ:TESS), a leading provider to the wireless communications industry, today reported record annual revenues of $733 million for the fiscal year ended April 1, 2012 and record earnings per diluted share of $2.03. For the fourth fiscal quarter ended April 1, 2012, revenues were $195 million and earnings per diluted share reached $0.43.

“Our outstanding fourth quarter capped a truly extraordinary year for TESSCO,” said Chairman and CEO Robert Barnhill. “Throughout fiscal 2012, our team members substantially increased productivity while providing exceptional value to all our customers and suppliers as we expanded our relationships with the many organizations that build, use and maintain wireless systems. In the process, we set numerous performance records for TESSCO and delivered strong returns for our shareholders.

“Last week we announced that we now expect to transition out of the low-margin third-party logistics (3PL) relationship with our largest customer, a tier one wireless carrier. We anticipate that this transition will begin in the second quarter of fiscal 2013 and be fully terminated at some point during our third fiscal quarter. During and after the transition, TESSCO looks forward to continuing our strong relationship supporting this customer's other programs and supplying our proprietary developed and manufactured Ventev (R) products.

“Our excellent relationship with this customer has evolved considerably over the years as their business requirements shifted from high value-added partnership needs to primarily a 3PL relationship. We have worked closely with them to support their business evolution and assure their success. This upcoming change will enable us to shift the considerable focus that this large relationship required to the rest of our core business, so that our undivided attention, talent and resources will be focused squarely on the exciting opportunities that are developing every day from the convergence of wireless and the internet. These opportunities leverage our company’s exceptional ability to architect and deliver, with innovation, productivity and speed, the product and value chain solutions that our customers need.

“Our earnings per share guidance for fiscal 2013 and the increased cash dividend demonstrate our confidence in our higher-margin core business – that its earnings growth can offset the transition of the large 3PL business relationship. We are as optimistic as ever about the opportunities that are present and our ability to capitalize on the trends in mobile broadband. We are excited about our new clarity of mission and the strong foundation for growth that we have built.”

Fourth-Quarter and Full-Year Fiscal 2012 Financial Results

For its fiscal 2012 fourth quarter, revenue grew by 49 percent compared to last year’s period, reaching $195 million. Gross profit grew by 25 percent, reaching $38 million. Operating margin improved to 3.0 percent compared to 2.0 percent in last year’s fourth quarter. Earnings per diluted share grew by 105 percent, reaching $0.43.

In the Commercial segment, revenue increased by 13 percent in the fourth quarter to $83 million and gross profit rose by 17 percent to $23 million. Within this segment, the private and government systems market produced 23 percent revenue growth and 22 percent gross profit growth; the commercial dealer and reseller market produced 13 percent revenue growth and 20 percent gross profit growth; and the public systems operator market experienced a 3 percent decline in revenue and a 1 percent increase in gross profit. Segment directly allocatable expenses declined by 5 percent, and market net profit contribution increased by 46 percent.

In the Retail segment, revenue increased by 97 percent in the fourth quarter to $112 million and gross profit increased by 40 percent to $15 million. Within this segment, revenue from the retailer, dealer agent and Tier 2/3 carrier market decreased 4 percent while gross profit attributable to this market increased 11 percent. The Tier 1 carrier market experienced 209 percent revenue growth and 81 percent gross profit growth. This growth was mostly attributable to a temporary expansion of our third-party logistics relationship with the major Tier 1 carrier discussed above. Retail segment directly allocatable expenses rose by 12 percent, as the growth in certain marketing expenses for Tier 1 carriers, most of which are completely variable to sales, more than offset other operating expense reductions. As a result, Retail segment net profit contribution increased by 89 percent.

Corporate support expenses grew by $4 million for the quarter. Nearly half of this growth was attributable to increases in the company-wide pay-for-performance bonus accruals, and our technology and other corporate support expenses also grew.

Net income totaled $3.5 million, or $0.43 per diluted share, in the fourth quarter as compared to $1.6 million, or $0.21 per diluted share, in the prior-year quarter.

EBITDA* totaled $7.0 million, or $0.85 per diluted share, in the fourth quarter as compared to $3.8 million, or $0.48 per diluted share, in the prior-year quarter.

For the fiscal year ended April 1, 2012, TESSCO reported record revenues of $733 million and record net income of $16 million, or $2.03 per diluted share. These results compare to revenues of $605 million and net income of $10 million, or $1.27 per diluted share, for fiscal 2011. EBITDA* totaled $32 million, or $3.93 per share, compared to $20 million, or $2.59 per share, in fiscal 2011. For the full fiscal year, Commercial revenue totaled $328 million and gross profit totaled $88 million compared to $313 million and $81 million, respectively, in fiscal 2011. Retail revenue totaled $405 million and gross profit totaled $60 million, compared to $292 million and $52 million, respectively.

As of April 1, 2012, the company’s cash balance totaled $18 million and there was no balance outstanding on the revolving line of credit.

Quarterly Cash Dividend

As announced on April 26, 2012, the company’s Board of Directors approved a 20 percent increase in the company’s quarterly cash dividend to $0.18 per common share. The quarterly dividend will be payable on May 23, 2012 to holders of record on May 9, 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

As described earlier, TESSCO expects that its low-margin, third-party logistics relationship with a major Tier 1 carrier customer will begin to transition in the second quarter of fiscal 2013 as that customer implements a new supply chain business model in an effort to lower total costs. TESSCO expects its relationship with the customer to be fully terminated during TESSCO’s third fiscal quarter, ending December 30 , 2012. TESSCO expects that the transition will result in a significant reduction in overall revenues, but that expected growth in other parts of the business will lessen the impact on overall profits.

Based on expected revenue growth in TESSCO’s higher-margin core commercial and retail customer segments, the company expects diluted earnings per share to be in the range of $1.80 to $2.15 for its fiscal year ending March 31, 2013. This range reflects the possibility of variations in the timing of the transition of TESSCO’s relationship with the Tier 1 carrier customer described above and faster growth from its core commercial and retail business initiatives.

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

Further, 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.

Fourth-Quarter Fiscal 2012 Conference Call

Management will host a conference call to discuss its results for the fourth fiscal quarter and full year, ended April 1, 2012, on Thursday, May 3, 2012 at 10:00 a.m. ET. To participate in the conference call, please call: 800-591-6944 (domestic call-in) or 617-614-4910 (international call-in) and reference code #92525103. 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 May 3, 2012 until 11:59 p.m. ET on May 10, 2012 by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering confirmation #91461789. 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 Fiscal Years Ended

April 1, 2012
  December 25, 2011   March 27, 2011 April 1, 2012   March 27, 2011
 
Revenues $ 194,787,400 $ 226,250,100 $ 130,300,200 $ 733,389,900 $ 605,219,200
Cost of goods sold   156,798,300   186,773,300   99,942,400   584,733,700   471,938,600
Gross profit 37,989,100 39,476,800 30,357,800 148,656,200 133,280,600
Selling, general and administrative expenses   32,221,100   31,596,300   27,724,000   121,652,400   117,305,100
Income from operations 5,768,000 7,880,500 2,633,800 27,003,800 15,975,500

Interest, net
  41,000   73,500   94,100   292,900   420,600
Income before provision for income taxes 5,727,000 7,807,000 2,539,700 26,710,900 15,554,900
Provision for income taxes   2,178,100   3,033,400   897,900   10,274,000   5,536,700
Net income $ 3,548,900 $ 4,773,600 $ 1,641,800 $ 16,436,900 $ 10,018,200
 
Basic earnings per share $ 0.46 $ 0.61 $ 0.22 $ 2.12 $ 1.33
Diluted earnings per share $ 0.43 $ 0.59 $ 0.21 $ 2.03 $ 1.27
 
       
TESSCO Technologies Incorporated
Consolidated Balance Sheets
 
April 1, 2012 March 27, 2011
(unaudited) (audited)
 
ASSETS
Current Assets:
Cash and cash equivalents $ 18,211,600 $ 8,178,200
Trade accounts receivable, net 88,748,200 65,708,700
Product inventory 53,360,300 45,709,800
Deferred tax assets 3,135,100 2,545,700
Prepaid expenses and other current assets   2,308,200     1,668,900  
Total current assets 165,763,400 123,811,300
 
Property and equipment, net 22,905,700 21,148,100
Goodwill, net 11,684,700 11,684,700
Other long-term assets   2,143,900     2,057,700  
Total assets $ 202,497,700   $ 158,701,800  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable $ 78,344,700 $ 62,913,000
Payroll, benefits and taxes 17,211,600 7,342,500
Income and sales tax liabilities 3,137,000 2,539,300
Accrued expenses and other current liabilities 1,041,100 1,278,400
Revolving line of credit -- --
Current portion of long-term debt   249,200     359,100  
Total current liabilities 99,983,600 74,432,300
 
Deferred tax liabilities 2,243,500 949,100
Long-term debt, net of current portion 2,708,000 2,959,100
Other long-term liabilities   3,910,700     1,481,200  
Total liabilities   108,845,800     79,821,700  
 
Shareholders’ Equity:
Preferred stock -- --
Common stock 88,100 84,100
Additional paid-in capital 45,135,800 40,668,100
Treasury stock, at cost (46,276,400 ) (44,388,400 )
Retained earnings 94,704,400 82,540,900
Accumulated other comprehensive loss   --     (24,600 )
Total shareholders’ equity   93,651,900     78,880,100  
 
Total liabilities and shareholder’s equity $ 202,497,700   $ 158,701,800  
 
       
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, 2012  

December 25, 2011
 

March 27, 2011
April 1, 2012  

March 27, 2011
Net income $ 3,548,900 $ 4,773,600 $ 1,641,800 $ 16,436,900 $ 10,018,200
Add:
Provision for income taxes 2,178,100 3,033,400 897,900 10,274,000 5,536,700
Interest, net 41,000 73,500 94,100 292,900 420,600
Depreciation and amortization   1,271,200   1,243,000   1,204,800   4,844,900   4,445,200
EBITDA $ 7,039,200 $ 9,123,500 $ 3,838,600 $ 31,848,700 $ 20,420,700
EBITDA per diluted share $ 0.85 $ 1.12 $ 0.48 $ 3.93 $ 2.59
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
         
Three months ended April 1, 2012

CommercialSegment

RetailSegment
Total

Revenues
Public carrier, contractor & program manager market $ 17,020 $ - $ 17,020
Private system operator & government market 32,971 - 32,971
Commercial dealer & reseller market 32,570 - 32,570
Retailer, dealer agent & Tier 2/3 carrier market   -     28,967     28,967  
Revenues, excluding Tier 1 carrier market 82,561 28,967 111,528
Tier 1 carrier market   -     83,259     83,259  
Total revenues   82,561     112,226     194,787  
 

Gross Profit
Public carrier, contractor & program manager market 4,106 - 4,106
Private system operator & government market 9,096 - 9,096
Commercial dealer & reseller market 9,497 - 9,497
Retailer, dealer agent & Tier 2/3 carrier market   -     7,079     7,079  
Gross profit, excluding Tier 1 carrier market 22,699 7,079 29,778
% of revenues 27.5 % 24.4 % 26.7 %
Tier 1 carrier market   -     8,211     8,211  
Total gross profit   22,699     15,290     37,989  
% of revenues 27.5 % 13.6 % 19.5 %
 
Directly allocatable expenses   10,743     7,766     18,509  
Segment net profit contribution $ 11,956   $ 7,524   19,480
% of revenues 14.5 % 6.7 % 10.0 %
Corporate support expenses*   13,753  
Income before provision for income taxes $ 5,727  
% of revenues 2.9 %
 
Growth Rates Compared to Prior Year Period:

Revenues
Public carrier, contractor & program manager market -2.6 % -2.6 %
Private system operator & government market 22.6 % 22.6 %
Commercial dealer & reseller market 12.6 % 12.6 %
Retailer, dealer agent & Tier 2/3 carrier market       -3.7 %     -3.7 %
Revenues, excluding Tier 1 carrier market 12.7 % -3.7 % 7.9 %
Tier 1 carrier market       208.9 %     208.9 %
Total revenues   12.7 %     96.8 %     49.5 %
 

Gross Profit
Public carrier, contractor & program manager market 1.3 % 1.3 %
Private system operator & government market 21.6 % 21.6 %
Commercial dealer & reseller market 19.8 % 19.8 %
Retailer, dealer agent & Tier 2/3 carrier market       11.2 %     11.2 %
Gross profit, excluding Tier 1 carrier market 16.6 % 11.2 % 15.3 %
Tier 1 carrier market       81.3 %     81.3 %
Total gross profit 16.6 % 40.3 % 25.1 %
 
Directly allocatable expenses   -4.7 %     12.5 %     1.9 %
Segment net profit contribution   45.9 %     88.5 % 59.9 %
Corporate support expenses*   42.6 %
Income before provision for income taxes   125.5 %
 
* Includes corporate overhead, facilities expense, depreciation, interest and company-wide pay-for-performance bonus expense
 
 
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
         
Fiscal Year Ended April 1, 2012

CommercialSegment

RetailSegment
Total

Revenues
Public carrier, contractor & program manager market $ 73,824 $ - $ 73,824
Private system operator & government market 129,129 - 129,129
Commercial dealer & reseller market 125,431 - 125,431
Retailer, dealer agent & Tier 2/3 carrier market   -     117,913     117,913  
Revenues, excluding Tier 1 carrier market 328,384 117,913 446,297
Tier 1 carrier market   -     287,093     287,093  
Total revenues   328,384     405,006     733,390  
 

Gross Profit
Public carrier, contractor & program manager market 17,101 - 17,101
Private system operator & government market 35,860 - 35,860
Commercial dealer & reseller market 35,393 - 35,393
Retailer, dealer agent & Tier 2/3 carrier market   -     26,306     26,306  
Gross profit, excluding Tier 1 carrier market 88,354 26,306 114,660
% of revenues 26.9 % 22.3 % 25.7 %
Tier 1 carrier market   -     33,996     33,996  
Total gross profit   88,354     60,302     148,656  
% of revenues 26.9 % 14,9 % 20.3 %
 
Directly allocatable expenses   41,490     29,963     71,453  
Segment net profit contribution $ 46,864   $ 30,339   77,203
% of revenues 14.3 % 7.5 % 10.5 %
Corporate support expenses*   50,492  
Income before provision for income taxes $ 26,711  
% of revenues 3.6 %
 
Growth Rates Compared to Prior Year Period:
 

Revenues
Public carrier, contractor & program manager market -15.2 % -15.2 %
Private system operator & government market 19.0 % 19.0 %
Commercial dealer & reseller market 7.0 % 7.0 %
Retailer, dealer agent & Tier 2/3 carrier market       7.1 %     7.1 %
Revenues, excluding Tier 1 carrier market 5.0 % 7.1 % 5.5 %
Tier 1 carrier market       57.4 %     57.4 %
Total revenues   5.0 %     38.5 %     21.2 %
 

Gross Profit
Public carrier, contractor & program manager market -15.1 % -15.1 %
Private system operator & government market 23.7 % 23.7 %
Commercial dealer & reseller market 11.6 % 11.6 %
Retailer, dealer agent & Tier 2/3 carrier market       14.6 %     14.6 %
Gross profit, excluding Tier 1 carrier market 9.3 % 14.6 % 10.5 %
Tier 1 carrier market       15.2 %     15.2 %
Total gross profit   9.3 %     15.0 %     11.5 %
 
Directly allocatable expenses   -11.9 %     -4.8 %     -9.1 %
Segment net profit contribution   38.9 %     44.7 % 41.1 %
Corporate support expenses*   29.0 %
Income before provision for income taxes   71.7 %
 
* 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 endedApril 1, 2012

Fiscal Year endedApril 1, 2012

Revenues
Base station infrastructure $ 49,701 $ 196,611
Network systems 17,676 75,150
Installation, test and maintenance 10,319 44,507
Mobile device accessories   117,091     417,122  
Total revenues 194,787 733,390
 

Gross Profit
Base station infrastructure 16,360 61,767
Network systems 4,099 15,817
Installation, test and maintenance 2,710 10,365
Mobile device accessories   14,820     60,707  
Total gross profit 37,989 148,656
% of revenues 19.5 % 20.3 %
 
Growth Rates Compared to Prior Year Period
 

Revenues
Base station infrastructure 12.3 % 2.1 %
Network systems 11.5 % 15.3 %
Installation, test and maintenance -11.1 % -3.8 %
Mobile device accessories   100.0 %   38.5 %
Total revenues 49.5 % 21.2 %
 

Gross Profit
Base station infrastructure 26.4 % 13.3 %
Network systems 17.3 % 30.6 %
Installation, test and maintenance 10.6 % -3.5 %
Mobile device accessories   29.2 %   8.6 %
Total gross profit 25.1 % 11.5 %

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