January 17, 2012 at 17:28 PM EST
TESSCO Announces Record Revenue of $226 Million and Record EPS of $0.59 for Third Quarter
TESSCO Technologies Incorporated (NASDAQ:TESS), a leading provider to the wireless communication industry, today reported revenues of $226.3 million and net income of $4.8 million, or $0.59 per diluted share, for the third fiscal quarter ended December 25, 2011.
Chairman and CEO Robert Barnhill commented, “It was a great quarter, resulting in record revenues and earnings! Sales in our Retail segment surged 67 percent as our customers, including Tier 1 carrier customers, responded to consumers’ continued quest to equip their cell phones with new cases, chargers and head sets. Our Commercial segment continued to contribute strongly to our results as we supported the construction and maintenance of our customers’ wireless systems. We continued to deliver exceptional value to all our customers with growing profitability; operating profit margin reached 3.5 percent, a 35 percent increase compared to last year’s quarter.
“Fiscal year 2012 is indeed proving to be a remarkable year for TESSCO as we successfully leverage the many opportunities arising from the convergence of wireless and the internet, broaden our addressable market, and build profitability and productivity.
"Going forward, we expect continued explosion of smart mobility devices, the accelerated expansion and enhancement of the carrier networks to support the devices' insatiable demand for bandwidth, and the creation of new private wireless systems to transform the way we live, work and play. TESSCO is there, leveraging these trends and delivering the immediate, reliable availability of the product plus value chain solutions needed, at the lowest total cost. We continue our goal of driving shareowner value with intense focus on the success of our customers, manufacturers and team members."
Third-Quarter Fiscal 2012 Financial Results
For its fiscal 2012 third quarter, TESSCO’s revenue grew by 35 percent compared to last year’s third quarter and reached $226.3 million, while its gross profit grew by 17 percent and reached $39.5 million. The Company’s operating margin improved to 3.5 percent compared to 2.6 percent in last year’s third quarter.
In the Retail segment, revenue increased by 67 percent and gross profit increased by 41 percent. Within this segment, the retailer, dealer agent and Tier 2/3 carrier market produced 15 percent revenue growth and 36 percent gross profit growth, and the Tier 1 carrier market experienced 93 percent revenue growth and 44 percent gross profit growth. The growth in the Tier 1 carrier market was mostly attributable to the expected expansion of our relationship with our major Tier 1 carrier customer. Retail segment directly allocatable expenses rose by 7 percent, and market net profit contribution increased by 100 percent.
In the Commercial segment, revenue increased by 2 percent and gross profit increased by 3 percent. Within this segment, the private and government systems market produced 9 percent revenue growth and 11 percent gross profit growth; the commercial dealer and reseller market produced 15 percent revenue growth and 11 percent gross profit growth; and the public systems operator market experienced a 21 percent decline in both revenue and gross profit. Segment directly allocatable expenses declined by 13 percent, and market net profit contribution increased by 24 percent.
Corporate support expenses grew by $3.1 million, or 33 percent, for the quarter. This growth is wholly attributable to increases in the company-wide pay-for-performance bonus accruals, which offset declines in other corporate support expenses.
Net income totaled $4.8 million, or $0.59 per diluted share, in the third quarter as compared to $3.0 million, or $0.38 per diluted share, in the prior-year quarter.
EBITDA* totaled $9.1 million, or $1.12 per diluted share, in the third quarter of fiscal 2012 as compared to $5.5 million, or $0.69 per diluted share, in the prior-year quarter.
For the first nine months of fiscal 2012, TESSCO reported revenues of $538.6 million and net income of $12.9 million, or $1.60 per diluted share. These results compare to revenues of $474.9 million and net income of $8.4 million, or $1.07 per diluted share, in the first nine months of fiscal 2011. EBITDA for the first nine months of fiscal 2012 totaled $24.8 million, or $3.08 per share, compared to $16.6 million, or $2.11 per share, in the first nine months of fiscal 2011.
As of December 25, 2011, the company’s cash balance totaled $14.5 million and there was no balance outstanding on the revolving line of credit.
Quarterly Cash Dividend
As previously reported, the company is continuing its quarterly dividend program with a $0.15 per common share cash dividend payable on February 15, 2012, to holders of record on February 1, 2012. 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.
Based on results through the third quarter of fiscal 2012 and our view of the current pipeline of business opportunities, we currently expect that earnings per diluted share for fiscal 2012 will range from $1.90 to $2.10.
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 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
As we have previously disclosed, our major tier one carrier customer has indicated that, over time, it expects to continue to explore business model changes in an ongoing effort to lower total costs. Notwithstanding the recent expansion of the relationship with 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. Further, any future business model changes by our largest customer put our supply chain business with this customer at risk. Absent this supply chain relationship, we could, however, maintain the ability to sell our proprietary products to this customer.
Third-Quarter Fiscal 2012 Conference Call
Management will host a conference call to discuss its results for the third fiscal quarter, ended December 25, 2011, on Wednesday, January 18, 2012 at 10:00 a.m. ET. To participate in the conference call, please call: 800-901-5217 (domestic call-in) or 617-786-2964 (international call-in) and reference code #53070260. 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 1:00 p.m. ET on January 18, 2012 until 5:00 p.m. ET on January 25, 2012 by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering confirmation #90641439. An archived replay of the conference call will also be available on the company’s website.
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.
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.
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.
David Young, 410-229-1380
Chief Financial Officer
Harriet Fried, 212-838-3777
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