Tessco Reports Fourth-Quarter 2019 Financial Results

Quarterly Revenues of $145 Million

Fiscal Year Growth in Revenue and Earnings Achieved

Quarterly Dividend of $0.20 per Share Declared

HUNT VALLEY, Md.–(BUSINESS WIRE)–TESSCO
TECHNOLOGIES INCORPORATED (NASDAQ: TESS) today reported
financial results for its fourth quarter of fiscal 2019, ended March 31,
2019.

Fourth-Quarter and Fiscal-Year Highlights*:

• Fourth-quarter revenue of $145.0 million, the second-highest
  fourth-quarter revenue in past six years
• Fourth-quarter revenue growth of 13% in the public carrier market
  compared with prior-year fourth quarter
• Second consecutive profitable fourth quarter, the Company’s most
  seasonally challenging quarter
• Achieved full-year revenue and earnings growth
• Annual revenue growth of 5%, including 36% growth in the public
  carrier market
• Declared quarterly dividend of $0.20 per share

* The Company’s fiscal year is the 52 or 53 weeks ending on the
Sunday falling on or between March 26 and April 1. Accordingly,
the fourth quarter of fiscal year 2018 ended on April 1 and included 14
weeks, as compared to the fourth quarter of fiscal year 2019, which
ended on March 31 and included 13 weeks.

** Fourth-quarter 2018 earnings were impacted by a $0.5 million, or
$0.06 per share, favorable change in income tax treatment related to the
cash surrender value of certain key-man life insurance policies. For
more information, see Note 13 of the Company’s 2018 Fiscal Year
Financial Statements, including in the Company’s Annual Report on Form
10-K for Fiscal Year 2018. Income before provision for income
taxes was $0.8 million in the fourth quarter of fiscal year 2019
compared to $1.1 million in the prior-year quarter.

*** 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 two asterisks (**) in the above chart 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*:

“We ended a strategically successful fiscal year with results in-line
with our expectations,” said Murray Wright, President and Chief
Executive Officer. “We achieved full-year revenue and earnings growth,
as well as positive earnings in the fourth quarter, our seasonally most
challenging quarter. This marks the second consecutive year we have
delivered fourth-quarter profitability and is further evidence that our
strategy and value proposition are resonating in the market. Growing our
market share in the public carrier ecosystem was the major contributor
to our revenue growth for both the quarter and the year.

“During the year, we accomplished a number of strategic milestones that
position us to capitalize on major near- and long-term wireless market
trends,” added Wright. “We completed the implementation of our enhanced
go-to-market commercial strategy. Although this process was successful,
it did provide a disruption during the year. We are starting to see the
benefits of this new model and expect to gain further traction with it
in the new fiscal year. In addition, we launched our services offering,
reorganized our sales teams to better align with our customers and
implemented a number of technology enhancements that are starting to
have a positive effect on our business.

“We have improved our cost structure through several expense control and
productivity initiatives that have started to benefit our bottom line,”
said Wright. “We will continue this sharp focus on expense control while
also making sure we make the necessary investments in business
generation resources and technology improvement initiatives that are
essential for driving long-term profitability growth.

“While we achieved our goal of recording a profitable fourth quarter for
the second time in six years, our results were affected by
lower-than-expected revenues in our Retail segment,” said Wright. “This
was primarily driven by lower store traffic caused in part by weaker
demand for Apple iPhone X devices. Additionally, one of our more
significant customers was acquired during the quarter. Following the
acquisition of that retail customer, we expect the surviving entity to
transition its purchases to much lower volumes from Tessco going forward.

“The Commercial segment continues to perform well, generating 9% annual
growth,” said Wright. “We will continue to invest in new business
generation activities in this market, including an aggressive strategy
to build deeper and more meaningful relationships with larger national
VARs, known as National Service Providers. By making these investments,
we expect the organization will be well positioned for the significant
growth in activity from 5G that we are expecting to begin late in FY
2020 or early in FY 2021.

“As we look forward, we believe our strategic efforts in fiscal 2019
will result in top-line growth and increased profitability in the coming
year. Due in part to the retail customer transition, we currently expect
overall revenue and earnings to start slower and build momentum as we
move through the fiscal year. In our Retail segment, we are continuing
our efforts to diversify our customer base and are aggressively pursuing
new business opportunities. In our Carrier business, we anticipate
growth to be driven by FirstNet and new technologies such as CBRS, as
well as the build-out of the 5G network towards the end of the fiscal
year. These next-generation technologies, as well as increased demand
for IoT products, are expected to drive growth in our VAR and Integrator
market both in fiscal 2020 and for several years to come. We will
continue to make important investments in technology and talent in order
to be well positioned ahead of these major wireless technology
advancements,” concluded Wright.

Fourth-Quarter and Fiscal Year 2019 Financial Results

For the fiscal 2019 fourth quarter, revenues totaled $145.0 million,
compared with $148.9 million for the fourth quarter of fiscal 2018.
Based on the cycle of the Company’s fiscal years, the FY19 fourth
quarter included 13 weeks compared with 14 weeks in the FY18 fourth
quarter. The aggregate decrease in revenue was also driven by slower
sales in the Retail segment, and to a lesser extent, the VAR &
Integrator business, which offset continued strength in the Company’s
Public Carrier and Ventev Infrastructure businesses.

Gross profit was $28.3 million for the fourth quarter of fiscal 2019,
compared with $31.5 million for the same quarter of fiscal 2018. Gross
profit was down 10.4% for the quarter, as sales to the lower margin
public carrier market constituted a larger percentage of revenue, and
higher tariffs increased freight-in costs. Gross margin was 19.5% of
revenue for the fourth quarter of fiscal 2019, compared with 21.2% in
the fourth quarter of last year.

As a result of the Company’s ongoing expense control initiatives and
productivity enhancements, as well as one less week in the quarter,
fourth-quarter selling, general and administrative (SG&A) expenses of
$27.3 million were down 10.1% from the prior-year quarter. As a
percentage of revenue, fourth-quarter SG&A was 18.8% compared with 20.4%
of revenue last year.

Net income and diluted earnings per share (EPS) were $0.5 million and
$0.06, respectively, for the fourth quarter of fiscal 2019, compared
with $1.2 million, and $0.14 per diluted share, for the prior-year
fourth quarter. Fourth-quarter 2018 earnings were impacted by a $0.5
million, or $0.06 earnings per share, favorable change in tax treatment
related to the cash surrender value of certain key-man life insurance
policies.**

For fiscal year 2019, total revenue and gross profit increased 4.6% and
0.9%, respectively. Net income and diluted earnings per share were $5.6
million and $0.65, respectively, in fiscal year 2019, compared with $5.2
million and $0.61 in fiscal 2018.

Cash Dividend

The Company’s Board of Directors has declared a quarterly cash dividend
of $0.20 per common share payable on June 5, 2019 to common shareholders
of record on May 22, 2019. 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

Tessco currently expects annual revenue growth and increased earnings
for fiscal 2020, excluding any one-time charges. The Company is
projecting high single-digit growth in the Commercial segment, offset by
modest declines in the Retail segment, primarily resulting from the
retail customer transition discussed above. The overall revenue growth
is expected to be driven by many new business generation opportunities
underway in both the Commercial and Retail segments. The Company expects
SG&A to increase as it continues to invest in business generation
resources and in technology initiatives. Because of the timing of its
revenue forecast and SG&A investments, the Company projects revenue and
earnings to be stronger in the second half of the fiscal year.

Due to the retail customer transition discussed above, as well as
additional expenses in the first quarter of fiscal 2020, including an
anticipated charge due to a resource reduction during the quarter, the
Company anticipates first-quarter fiscal 2020 earnings to be negative.
The Company expects to return to quarterly profitability in the second
quarter.

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
the Company assumes no obligation to update the information contained in
this press release, including the Business Outlook, at any time.

Fourth-Quarter Fiscal 2019 Conference Call

Management will host a conference call to discuss fourth-quarter fiscal
year 2019 results and business outlook tomorrow, Tuesday, May 7, 2019 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 #7176139.

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 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, Incorporated (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 April 1, 2018, 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.

Contacts

TESSCO Technologies Incorporated
Aric Spitulnik
Chief
Financial Officer
410-229-1419
spitulnik@tessco.com
or
Jamie
Bernard, IRC
Sharon Merrill Associates
617-542-5300
TESS@investorrelations.com

Read full story here