HUNT VALLEY, Md.--(BUSINESS WIRE)--TESSCO TECHNOLOGIES INCORPORATED (NASDAQ: TESS) today reported financial results for its fiscal second quarter ended September 27, 2020.
Second-Quarter Revenue by Market:
“We made solid progress on our near-term profit improvement initiatives in the second fiscal quarter and took concrete steps to transform the business in accordance with our three-pillar strategy,” said President and Chief Executive Officer Sandip Mukerjee. “During the quarter, we maintained our focus on taking aggressive actions to drive higher margins, reduce costs and effectively manage inventory. As a result, we achieved the best quarterly bottom-line performance in a year, improved gross profit in both business segments on a sequential basis, and increased overall gross margin by 30 basis points year over year, despite lower sales due to continued headwinds from the economic downturn and COVID-19.
“While sales in the public carrier market were challenged due to pandemic-related delays, we continue to capture market share in this ecosystem and better position Tessco to capitalize on new wireless technologies including 5G, private LTE/CBRS and IoT. Specifically, we are encouraged by the early results of our higher-margin Ventev brand in the Public Carrier ecosystem with enclosures for the monitoring of tower equipment. Industrializing our Ventev operations and scaling our capabilities positions us at the leading edge as an industry innovator.
“We are realizing the benefits of our strategic execution and investment initiatives, as evidenced by higher sales of Ventev products in our VAR business and increased sales through the Tessco.com channel. As a result of the higher-margin Ventev and Tessco.com VAR revenues, combined with a positive Public Carrier sales mix, our overall Commercial Segment gross margin increased 220 basis points sequentially.
“We are positioning the business to capitalize on the once-in-a-generation opportunity resulting from the unprecedented and concurrent rollout of new wireless technologies. We are taking bold actions to improve the performance of our VAR and Integrator business, including investing in our sales teams, reengaging with the end-user community and reestablishing our relevance on a sector-by-sector basis. The Board and management team have been focused on turning the business around and returning it to profitable growth and modernizing our IT and other operating systems. While we recognize that there is more to be done, the entire team is working with urgency to transform the Company by executing our three-pillar strategy and drive value for shareholders.”
Business Outlook
The Company expects sequential revenue growth in the Commercial Segment in the third quarter, but with a return to more historical public carrier market gross margins due to product mix.
During the second quarter the Company recognized benefits associated with changes in estimates related to accounts receivable and inventory reserves that the Company would not expect to recur. Additionally, the Company expects to incur incremental legal and other costs associated with responses to the recently initiated consent solicitation.
“We are encouraged by the progress we made in the second quarter on our strategy and operating results,” said Mukerjee. “As we look ahead to the second half of the year, we are focused on continuing to drive growth and profitability improvement as we execute on our three-pillar strategy. While we saw sequential improvements in Retail in the second quarter, we will continue to manage the decline of that business to maximize profitability. For the Commercial business, given the current macroeconomic outlook for the remainder of the year, we expect an easing of the project delays in the second half of Tessco’s fiscal year, and additional growth coming from 5G in calendar year 2021. Overall, we are uniquely positioned to capitalize on the exponential growth, technological change and resultant complexity that will continue to drive our industry.”
Forecasting future results or trends is inherently difficult for any business, and actual results or trends may differ materially from those forecasted. The Business Outlook published in this press release reflects only the Company’s current best estimate and it assumes no obligation to update the information contained in this press release, including the Business Outlook, at any time.
Second-Quarter Financial Results
For the fiscal 2021 second quarter, revenues totaled $119.7 million, compared with $141.8 million for the second quarter of fiscal 2020, primarily as a result of lower sales in both segments due to continued headwinds from the economic environment and COVID-19.
Gross profit was $22.7 million for the second quarter of fiscal 2021, compared with $26.3 million for the same quarter of fiscal 2020, due to lower sales volume. Gross margin grew 30 basis points to 18.9% for the second quarter of fiscal 2021 from 18.6% in the second quarter of last year. The increase was due to product mix in the Commercial Segment, reduced freight-in costs and improved inventory management.
Second-quarter selling, general and administrative (SG&A) expenses decreased 11% from the prior-year second quarter to $22.8 million, primarily related to the lower sales and the Company’s cost-reduction actions. In addition, Tessco recorded a benefit from bad debt expense of $0.8 million as a result of strong collection efforts, allowing the Company to reduce reserves put in place in fiscal year 2020 related to the pandemic.
Second-quarter fiscal 2021 loss before income taxes was $245,900 compared with income before income taxes of $239,000 in the second quarter of fiscal 2020.
Net loss and loss per share was $266,900 and $0.03, respectively, for the second quarter of fiscal 2021. This compares with net income of $22,000 and earnings per share of $0.00, for the prior-year second quarter.
EBITDA and EBITDA per share were $888,500 and $0.10, respectively, for the second quarter of fiscal 2021. This compares with EBITDA and EBITDA per share of $1.7 million and $0.20, respectively, for the second quarter of fiscal 2020.
The Company maintains a solid liquidity profile. As of September 27, 2020, the outstanding balance under the Company’s $75 million line of credit was approximately $32.1 million.
Second-Quarter Conference Call
Management will host a conference call to discuss second-quarter fiscal-year 2021 results and business outlook on Thursday, October 29, 2020 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 #3656348. 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 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 350 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.
