Exhibit 99.1
TESSCO Reports Second Quarter Fiscal Year 2015 Earnings
Company Outlines Transformational Growth Initiatives
Declares Quarterly Dividend of $0.20 per share
HUNT VALLEY, MD, October 23, 2014—TESSCO (NASDAQ: TESS), Your Total Source® for the product and value chain solutions to build, use, maintain and resell wireless systems, today reported its second quarter results for the period ended September 28, 2014.
Financial Highlights
| | Second Quarter 2015 | Second Quarter 2014 | 1st Half FY 2015 | 1st Half FY 2014 |
| Revenue | $148.5M | $146.5M | $301.5M | $290.6M |
| Diluted EPS | $0.42 | $0.55 | $0.86 | $1.06 |
| EBITDA* per share | $0.84 | $1.06 | $1.70 | $2.04 |
| Operating margin | 3.9% | 5.2% | 4.0% | 5.0% |
| Cash balance | $2.7M | $3.2M | $2.7M | $3.2M |
| Line of credit | $0 | $0 | $0 | $0 |
“Overall, we are disappointed with our second-quarter revenue and earnings results,” said Robert Barnhill, TESSCO Chairman and CEO. “Revenues for the quarter were up slightly compared with a year ago, but below our expectations primarily due to the pullback in 4G infrastructure builds by cellular carriers, as well as reduced government purchases. Gross margins also were lower than expected, driven by a carrier-related contract sale with particularly low margins, which were not offset by higher-margin 4G infrastructure sales. We are aggressively focused on replacing the reduced carrier and government spend with increased private system and commercial reseller sales, value engineering our business, executing our growth initiatives, and improving profitability.
“We remain very committed to our strategic investment in the crucial talent and technology necessary to capitalize on the immense opportunities created by the convergence of wireless and the Internet, and meeting the challenges created by the evolving needs and expectations of customers.
“We are making significant progress in five key transformational growth initiatives:
1. Transform from a company selling products into one that architects and sells complete solutions.
2. Expand our offerings to provide end-to-end solutions for our customers to build and maintain the new voice, data and video wireless systems.
3. Enhance our product availability, and the delivery of the “kitted” solution where and when required.
4. Reorganize our business generation structure with the right talent in every team by building: unified sales teams for each customer, consisting of a development executive, account specialist and solutions architect; solutions development and product management teams to research and develop new systems to support and provide the right offerings; and marketing teams to create strategy, design go-to-market campaigns, and build and manage the digital platform.
5. Finalize the build of our digital technology platform to provide the customer with the ability to obtain knowledge, purchase and control their supply chain, and to provide TESSCO with new opportunities and enhanced productivity.
“Considering the current challenging business environment, our six-month results, the expectation that carriers will not renew their spending until after the new calendar year and a quarterly impact of about $0.10 per share for the next two quarters from our talent and technology expenses, we are lowering our EPS guidance for fiscal year 2015 to a range of $1.40 to $1.55. We expect the second half of the fiscal year to reflect typical seasonality, with the fourth quarter being the slowest of the year.
“Although we are challenged by market dynamics in the short term, we are excited about the power of our initiatives and our ability to capitalize on the many opportunities we see to drive profitable growth. We remain focused on shareholder value creation and on continuing to return capital through dividends and share repurchases,” concluded Barnhill.
Forecasting future results is inherently difficult for any business, and actual results may differ materially from those forecasted. The nature of the business is that TESSCO typically ships 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 2015 Financial Results
For the fiscal 2015 second quarter, revenues totaled $148.5 million, compared with $146.5 million in the second quarter of the prior year.
Second-quarter fiscal 2015 gross profit was $35.4 million, compared with $36.5 million in the year-ago quarter. Gross margin was 23.9% of revenue, compared with 24.9% in last year’s second quarter. The lower gross margin was primarily due to product mix within the public network organization market.
Selling, general and administrative (SG&A) expenses were $29.6 million, compared with $28.9 million in last year's second quarter, primarily due to increased expenses associated with investments in talent and technology. Operating margin was 3.9% versus 5.2% in the prior-year quarter.
Net income and diluted earnings per share totaled $3.5 million and $0.42, respectively, for the second quarter of fiscal 2015, compared with $4.6 million and $0.55, respectively, for the prior-year quarter.
EBITDA* totaled $7.1 million, or $0.84 per diluted share, in the second quarter of fiscal 2015, compared with $8.9 million, or $1.06 per diluted share, in the prior-year quarter.
Inventory increased $9 million from Q1, as a result of a ramp-up in orders from a large customer and as the Company builds inventory for the retail holiday season. TESSCO expects its level of inventory to decline in the second half of the year. The Company had had no outstanding balance on its $35 million line of credit at the end of the second quarter.
Market Highlights Compared to Second Quarter of Fiscal Year 2014:
| | Revenues | Gross Profit |
| | | |
· Public carriers, contractors & program managers | (0.2%) | (18.5%) |
· Private and government system operators | (5.2%) | (3.5%) |
· Commercial dealers & resellers | 1.0% | 1.9% |
· Retailer, independent dealer agents & carriers | 8.8% | 7.9% |
Quarterly Cash Dividends
The Board of Directors declared a quarterly cash dividend of $0.20 per common share payable on November 22, 2014 to holders of record on November 5, 2014. Any future declaration of dividends, and the establishment of record and payment dates, is subject to future determinations of the Board of Directors.
Second-Quarter Fiscal 2015 Conference Call
Management will host a conference call to discuss its second-quarter 2015 results today, October 23, 2014 at 5:00 PM ET. To participate in the conference call, please call: 800-510-0146 (domestic call-in) or 617-614-3449 (international call-in) and reference code #24094179.
A live webcast of the conference call will be available at www.tessco.com/go/corporatepresentations. 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 9:00 p.m. ET on October 23, 2014 until 11:59 p.m. ET on October 30, 2014 by calling 888-286-8010 (domestic) or 617-801-6888 (international) and entering confirmation #37134534. An archived replay of the conference call will also be available on the company's website at www.tessco.com/go/corporatepresentations.
*Non-GAAP Information
EBITDA and Adjusted EBITDA are measures used by management to evaluate the Company's ongoing operations and as general indicators 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). EBITDA is defined as income from operations, plus interest expense, net of interest income, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus stock compensation expense. Management believes EBITDA, Adjusted EBITDA as well as EBITDA and Adjusted 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, Adjusted EBITDA and EBITDA and Adjusted EBITDA per share may not be comparable to other similarly titled measures of other companies. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as measures of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA and Adjusted EBITDA per diluted share are also non-GAAP calculations defined as EBITDA or Adjusted EBITDA divided by the Company's diluted weighted average shares outstanding. Additionally, EBITDA or Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they does not reflect certain cash requirements such as interest payments, tax payments and debt service requirements. The amounts shown for EBITDA and Adjusted 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 Technologies Incorporated (NASDAQ: TESS)
The convergence of wireless and the Internet is revolutionizing the way we live, work and play. New systems and applications are creating challenges and opportunities at an unprecedented rate.
TESSCO is there ‒enabling organizations to capitalize on the opportunities in wireless by providing Your Total Source® of end-to-end solutions. TESSCO delivers the knowledge, and product and supply chain solutions required to build, use and maintain, wireless voice, data and video systems. The Company is a component of the Russell 2000® index
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; changes in customer and product mix that affects 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; third-party freight carrier interruption; increased competition; 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; claims against us for breach of the intellectual property rights of third parties; product liability claims; 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
Aric Spitulnik
Chief Financial Officer
410-229-1419
spitulnik@tessco.com
or
David Calusdian
Sharon Merrill
617-542-5300
TESS@investorrelations.com
TESSCO Technologies Incorporated
Consolidated Statements of Income (Unaudited)
| | | Fiscal Quarters Ended | | | Six Months Ended | |
| | | September 28, 2014 | | | June 29, 2014 | | | September 29, 2013 | | | September 28, 2014 | | | September 29, 2013 | |
| | | | | | | | | | | | | | | | |
| Revenues | | $ | 148,521,800 | | | $ | 152,946,300 | | | $ | 146,526,000 | | | $ | 301,468,100 | | | $ | 290,634,800 | |
| Cost of goods sold | | | 113,085,800 | | | | 117,697,500 | | | | 110,033,200 | | | | 230,783,300 | | | | 218,704,100 | |
| Gross profit | | | 35,436,000 | | | | 35,248,800 | | | | 36,492,800 | | | | 70,684,800 | | | | 71,930,700 | |
| Selling, general and administrative expenses | | | 29,569,400 | | | | 29,176,400 | | | | 28,903,400 | | | | 58,745,800 | | | | 57,377,500 | |
| Income from operations | | | 5,866,600 | | | | 6,072,400 | | | | 7,589,400 | | | | 11,939,000 | | | | 14,553,200 | |
| Interest, net | | | 49,400 | | | | 28,400 | | | | 67,000 | | | | 77,800 | | | | 121,600 | |
| Income before provision for income taxes | | | 5,817,200 | | | | 6,044,000 | | | | 7,522,400 | | | | 11,861,200 | | | | 14,431,600 | |
| Provision for income taxes | | | 2,303,600 | | | | 2,372,600 | | | | 2,941,300 | | | | 4,676,200 | | | | 5,558,300 | |
| Net income | | $ | 3,513,600 | | | $ | 3,671,400 | | | $ | 4,581,100 | | | $ | 7,185,000 | | | $ | 8,873,300 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 0.42 | | | $ | 0.44 | | | $ | 0.56 | | | $ | 0.87 | | | $ | 1.09 | |
| Diluted earnings per share | | $ | 0.42 | | | $ | 0.44 | | | $ | 0.55 | | | $ | 0.86 | | | $ | 1.06 | |
TESSCO Technologies Incorporated
Consolidated Balance Sheets
| | | September 28, 2014 | | | March 30, 2014 | |
| | | (unaudited) | | | (audited) | |
| | | | | | | |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 2,656,900 | | | $ | 11,467,900 | |
| Trade accounts receivable, net | | | 80,665,500 | | | | 67,495,700 | |
| Product inventory | | | 81,838,400 | | | | 61,955,700 | |
| Deferred tax assets | | | 6,932,100 | | | | 6,913,000 | |
| Prepaid expenses and other current assets | | | 3,478,300 | | | | 2,336,600 | |
| Total current assets | | | 175,571,200 | | | | 150,168,900 | |
| | | | | | | | | |
| Property and equipment, net | | | 21,750,100 | | | | 22,765,400 | |
| Goodwill, net | | | 11,684,700 | | | | 11,684,700 | |
| Other long-term assets | | | 2,341,300 | | | | 2,341,300 | |
| Total assets | | $ | 211,347,300 | | | $ | 186,960,300 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Trade accounts payable | | $ | 73,526,800 | | | $ | 50,756,900 | |
| Payroll, benefits and taxes | | | 5,328,200 | | | | 7,670,100 | |
| Income and sales tax liabilities | | | 2,242,400 | | | | 2,477,700 | |
| Accrued expenses and other current liabilities | | | 1,088,000 | | | | 923,600 | |
| Revolving line of credit | | | -- | | | | -- | |
| Current portion of long-term debt | | | 250,400 | | | | 250,200 | |
| Total current liabilities | | | 82,435,800 | | | | 62,078,500 | |
| | | | | | | | | |
| Deferred tax liabilities | | | 4,260,700 | | | | 4,260,700 | |
| Long-term debt, net of current portion | | | 2,082,900 | | | | 2,208,200 | |
| Other long-term liabilities | | | 3,386,300 | | | | 3,584,800 | |
| Total liabilities | | | 92,165,700 | | | | 72,132,200 | |
| | | | | | | | | |
| Shareholders’ Equity: | | | | | | | | |
| Preferred stock | | | -- | | | | -- | |
| Common stock | | | 95,800 | | | | 94,200 | |
| Additional paid-in capital | | | 56,129,600 | | | | 53,987,700 | |
| Treasury stock, at cost | | | (51,727,400 | ) | | | (50,084,600 | ) |
| Retained earnings | | | 114,683,600 | | | | 110,830,800 | |
| Accumulated other comprehensive loss | | | -- | | | | -- | |
| Total shareholders’ equity | | | 119,181,600 | | | | 114,828,100 | |
| | | | | | | | | |
| Total liabilities and shareholder’s equity | | $ | 211,347,300 | | | $ | 186,960,300 | |
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 28, 2014 | | | June 29, 2014 | | | September 29, 2013 | | | September 28, 2014 | | | September 29, 2013 | |
| Net income | | $ | 3,513,600 | | | $ | 3,671,400 | | | $ | 4,581,100 | | | $ | 7,185,000 | | | $ | 8,873,300 | |
| Add: | | | | | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | 2,303,600 | | | | 2,372,600 | | | | 2,941,300 | | | | 4,676,200 | | | | 5,558,300 | |
| Interest, net | | | 49,400 | | | | 28,400 | | | | 67,000 | | | | 77,800 | | | | 121,600 | |
| Depreciation and amortization | | | 1,185,100 | | | | 1,167,800 | | | | 1,261,300 | | | | 2,352,900 | | | | 2,474,200 | |
| EBITDA | | $ | 7,051,700 | | | $ | 7,240,200 | | | $ | 8,850,700 | | | $ | 14,291,900 | | | $ | 17,027,400 | |
| Add: Stock based compensation | | | 228,000 | | | | 449,600 | | | | 517,000 | | | | 677,600 | | | | 1,096,900 | |
| Adjusted EBITDA | | $ | 7,279,700 | | | $ | 7,689,800 | | | $ | 9,367,700 | | | $ | 14,969,500 | | | $ | 18,124,300 | |
| EBITDA per diluted share | | $ | 0.84 | | | $ | 0.86 | | | $ | 1.06 | | | $ | 1.70 | | | $ | 2.04 | |
| Adjusted EBITDA per diluted share | | $ | 0.86 | | | $ | 0.91 | | | $ | 1.12 | | | $ | 1.78 | | | $ | 2.17 | |
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
| | | Three months ended September 28, 2014 | | | Six months ended September 28, 2014 | |
| | | Total | | | Total | |
Market Revenues | | | | | | |
| Public Carriers, Contractors & Program Managers | | $ | 40,853 | | | $ | 82,271 | |
| Private & Government System Operators | | | 29,446 | | | | 58,450 | |
| Commercial Dealers & Resellers | | | 36,780 | | | | 75,064 | |
| Retailer, Independent Dealer Agents & Carriers | | | 41,443 | | | | 85,683 | |
| Total revenues | | $ | 148,522 | | | $ | 301,468 | |
| | | | | | | | | |
Gross Profit | | | | | | | | |
| Public Carriers, Contractors & Program Managers | | | 7,347 | | | | 14,540 | |
| Private & Government System Operators | | | 8,082 | | | | 15,995 | |
| Commercial Dealers & Resellers | | | 10,289 | | | | 20,926 | |
| Retailer, Independent Dealer Agents & Carriers | | | 9,718 | | | | 19,224 | |
| Total gross profit | | $ | 35,436 | | | $ | 70,685 | |
| % of revenues | | | 23.9 | % | | | 23.4 | % |
| | | | | | | | | |
| Direct expenses | | | 19,963 | | | | 38,753 | |
| Segment net profit contribution | | | 15,473 | | | | 31,932 | |
| % of revenues | | | 10.4 | % | | | 10.6 | % |
| Corporate support expenses* | | | 9,656 | | | | 20,071 | |
| Income before provision for income taxes | | $ | 5,817 | | | $ | 11,861 | |
| % of revenues | | | 3.9 | % | | | 3.9 | % |
| | | | | | | | | |
| Growth Rates Compared to Prior Year Period: | |
| | |
Revenues | | | | | | | | |
| Public Carriers, Contractors & Program Managers | | | -0.2 | % | | | 5.0 | % |
| Private & Government System Operators | | | -5.2 | % | | | -0.9 | % |
| Commercial Dealers & Resellers | | | 1.0 | % | | | 3.6 | % |
| Retailer, Independent Dealer Agents & Carriers | | | 8.8 | % | | | 5.9 | % |
| Total revenues | | | 1.4 | % | | | 3.7 | % |
| | | | | | | | | |
Gross Profit | | | | | | | | |
| Public Carriers, Contractors & Program Managers | | | -18.5 | % | | | -14.0 | % |
| Private & Government System Operators | | | -3.5 | % | | | -1.1 | % |
| Commercial Dealers & Resellers | | | 1.9 | % | | | 2.9 | % |
| Retailer, Independent Dealer Agents & Carriers | | | 7.9 | % | | | 3.9 | % |
| Total gross profit | | | -2.9 | % | | | -1.7 | % |
| | | | | | | | | |
| Direct expenses | | | 12.2 | % | | | 9.4 | % |
| Segment net profit contribution | | | -17.2 | % | | | -12.6 | % |
| Corporate support expenses* | | | -13.6 | % | | | -9.1 | % |
| Income before provision for income taxes | | | -22.7 | % | | | -17.8 | % |
* Includes corporate overhead, facilities expense, depreciation, interest and company-wide pay-for-performance bonus expense
TESSCO Technologies Incorporated
Supplemental Results Summary (in thousands) (Unaudited)
| | | Three months ended September 28, 2014 | | | Six months ended September 28, 2014 | |
Revenues | | | | | | |
| Base station infrastructure | | $ | 64,129 | | | $ | 127,016 | |
| Network systems | | | 27,496 | | | | 58,040 | |
| Installation, test and maintenance | | | 10,663 | | | | 21,585 | |
| Mobile device accessories | | | 46,234 | | | | 94,827 | |
| Total revenues | | $ | 148,522 | | | $ | 301,468 | |
| | | | | | | | | |
Gross Profit | | | | | | | | |
| Base station infrastructure | | | 16,817 | | | | 33,892 | |
| Network systems | | | 4,174 | | | | 8,859 | |
| Installation, test and maintenance | | | 2,284 | | | | 4,817 | |
| Mobile device accessories | | | 12,161 | | | | 23,117 | |
| Total gross profit | | $ | 35,436 | | | $ | 70,685 | |
| % of revenues | | | 23.9 | % | | | 23.4 | % |
| | | | | | | | | |
| Growth Rates Compared to Prior Year Period | |
| | | | | | | | | |
Revenues | | | | | | | | |
| Base station infrastructure | | | -5.5 | % | | | -7.6 | % |
| Network systems | | | 25.9 | % | | | 41.9 | % |
| Installation, test and maintenance | | | -15.3 | % | | | -3.4 | % |
| Mobile device accessories | | | 4.6 | % | | | 5.4 | % |
| Total revenues | | | 1.4 | % | | | 3.7 | % |
| | | | | | | | | |
Gross Profit | | | | | | | | |
| Base station infrastructure | | | -10.4 | % | | | -10.0 | % |
| Network systems | | | 11.5 | % | | | 17.1 | % |
| Installation, test and maintenance | | | -17.8 | % | | | -6.1 | % |
| Mobile device accessories | | | 8.6 | % | | | 7.1 | % |
| Total gross profit | | | -2.9 | % | | | -1.7 | % |
