TESSCO TECHNOLOGIES INCORPORATED (NASDAQ: TESS)
today reported financial results for its fiscal year 2023 fourth
quarter, ended March 26, 2023.
Fourth-Quarter and Full Fiscal Year 2023 Financial Highlights
(all from continuing operations):
- Fiscal year 2023 revenues increased by 8% and gross profit
grew by 17%; fiscal 2023 revenues of $452 million, within guidance
range
- Fiscal year 2023 net loss of $4.3 million, within guidance
range
- Adjusted EBITDA for fiscal year 2023 increased from $0.3
million to $2.8 million, or 795%
- Full-year fiscal 2023 net income and adjusted EBITDA both
negatively impacted by $2.1 million accounts receivable write-off
and $1.0 million in expenses related Company’s definitive merger
agreement
- Fourth-quarter fiscal year 2023 revenues increased by 3% and
gross profit increased by 10% compared to year-ago period
- Company’s sales bookings consistent with prior year despite
improving global supply chain conditions leading to shorter
customer planning horizons
*See explanation of non-GAAP information below.
As previously announced, the Company entered into a definitive
merger agreement with entities affiliated with Lee Equity Partners
and Twin Point Capital, which also own Alliance Corporation, a
value-added distributor of equipment for the wireless industry, and
GetWireless, LLC, a value-added distributor of cellular solutions
that connect the Internet of Things (IoT). Under and subject to the
terms of the merger agreement, all outstanding shares of Tessco’s
common stock will be acquired for $9.00 in cash, resulting in a
Company enterprise value of approximately $161.4 million. The
merger is expected to close in the third calendar quarter of 2023,
subject to the approval of Tessco’s shareholders and the
satisfaction of customary closing conditions.
The merger, which has been unanimously approved by Tessco’s
board of directors, reflects a premium of approximately 91% to the
closing price of the last trading day prior to the date of the
announcement of the agreement on April 12, 2023, and a premium of
approximately 97% to Tessco’s 30-day volume-weighted average stock
price as of April 11, 2023.
“The definitive merger agreement is an exciting development for
Tessco and will create benefits for our customers, including a
greater breadth of products and service options, as we team with
two companies that are true leaders in serving the wireless
industry,” said Sandip Mukerjee, Tessco’s President and Chief
Executive Officer. “Furthermore, the deal is a win for our
shareholders as the transaction price reflects the success of our
considerable turnaround efforts over the past three years, as well
as Tessco’s current growth trajectory.
“This fiscal year has been another milestone in our ongoing
turnaround journey. Building on the positive adjusted EBITDA
results achieved in fiscal 2022, we made significant progress by
improving adjusted EBITDA by $2.5 million in fiscal 2023,
culminating in a total of $2.8 million for the year. Our fiscal
2023 adjusted EBITDA performance was negatively impacted by a $2.1
million accounts receivable reserve allocated to a major contractor
customer and $1.0 million in costs related to the merger agreement.
Excluding these notable charges, our adjusted EBITDA would have
been well within the $4-$7 million guidance range we established at
the outset of the year.
“In addition to our financial achievements, we are proud to have
successfully launched our new enterprise resource planning system,
which positions us for enhanced operational efficiency and improved
business processes across our organization.”
Fourth-Quarter and Full-Year Financial Results
Due to the sale of TESSCO’s retail inventory and other related
assets in the third quarter of fiscal year 2021, and the Company’s
corresponding retail business exit, the Company’s Consolidated
Financial Statements present earnings from both continuing and
discontinued operations. The financial tables and financial results
discussed in this press release relate only to continuing
operations.
Fourth Quarter FY
2023
Fourth Quarter FY
2022
Full Year FY
2023
Full Year FY 2022
Revenue
$104.2M
$101.6M
$452.1M
$417.5M
Gross margin
20.0%
18.6%
20.1%
18.7%
Net income (loss)
$(5.6M)1
$(1.0M)
$(4.3M)1
$(3.3M)3
Income (loss) per share
$(0.61)
$(0.12)
$(0.47)
$(0.37)
Adjusted EBITDA*
$(1.9M)2
$0.7M
$2.8M2
$0.3M
1 Fourth quarter fiscal year 2023 net
income was impacted by $1.5 million in incremental depreciation and
amortization associated with the Company’s new ERP system, $1.5
million related to higher bad debt expense as discussed above ($2.1
million higher for the full fiscal year) and $0.3 million in costs
associated with the Company’s definitive merger agreement ($1.0
million for the full fiscal year).
2 Fourth quarter fiscal year 2023 Adjusted
EBITDA was impacted by $1.5 million related to higher bad debt
expense ($2.1 million higher for the full fiscal year) and $0.3
million in costs associated with the Company’s definitive merger
agreement ($1.0 million for the full fiscal year).
3 Fiscal year 2022 net income included a
$1.2 million tax benefit related to accelerated deductions on the
Company’s ERP system and a carryback under the CARES Act.
* Adjusted EBITDA is a non-GAAP financial
measure; see the discussion of non-GAAP information below and the
reconciliation of non-GAAP to GAAP results included as an exhibit
to this press release.
Revenue Growth by Segment –
Year over Year
Q4 FY 2023 vs. Q4 FY
2022
FY 2023 vs. FY 2022
Carrier
4.6%
7.4%
Commercial
1.0%
8.9%
Total
2.6%
8.3%
Sales Backlog (end of
quarter)
Carrier
Commercial
Total
Q4 FY23
$34M
$31M
$65M
Q3 FY23
$41M
$43M
$84M
Q2 FY23
$46M
$52M
$98M
Q1 FY23
$45M
$54M
$99M
Q4 FY22
$32M
$43M
$75M
Selling, General and
Administrative Expenses as a % of Revenues
Fourth Quarter FY
2023
Fourth Quarter FY
2022
FY 2023
FY 2022
Variable1 expenses as a % of
revenue
5.8%
6.2%
6.2%
6.1%
Fixed expenses as a % of
revenue
16.3%2
12.4%
13.2%2
12.8%
Depreciation and amortization as
a % of revenue
2.2%
0.6%
1.2%
0.6%
Total expenses as a % of
revenue
24.3%
19.2%
20.6%
19.5%
1 Variable expenses are primarily
freight-out costs, distribution center labor, and sales
commissions. Freight charged to customers largely offset
freight-out costs and are included in revenue and gross profit.
2 Fixed expenses for the fourth quarter
and the full fiscal year 2023 include $1.5 million and $2.1
million, respectively, related to higher bad debt expense, and also
include $0.3 million and $1.0 million, respectively, related to the
Company’s previously announced definitive merger agreement.
For the fiscal 2023 fourth quarter, revenues increased 2.6% to
$104.2 million, from $101.6 million for the fourth quarter of
fiscal 2022.
Gross profit was $20.8 million for the fourth quarter of fiscal
2023, compared with $18.9 million for the same quarter of fiscal
2022. Gross margin was 20.0% for the fourth quarter of fiscal 2023,
compared with 18.6% in the fourth quarter of fiscal 2022, largely
due to pricing efficiencies and a more favorable product and
customer mix.
Fourth-quarter, fiscal-2023 selling, general and administrative
(SG&A) expenses were $25.4 million, compared with $19.5 million
in the year-ago quarter. SG&A expenses as a percentage of
revenue were 24.3% in the fourth quarter of fiscal 2023, up from
19.2% in the prior-year quarter.
Fourth-quarter, fiscal-2023 net loss was $5.6 million, compared
with a net loss of $1.0 million for the fourth quarter of fiscal
2022.
Adjusted EBITDA* loss was $1.9 million for the fourth quarter of
fiscal 2023. This compares with adjusted EBITDA* of $0.7 million
for the fourth quarter of fiscal 2022.
As of March 26, 2023, the outstanding balance under the
Company’s $105 million line of credit was $64.2 million and the
Company had $0.8 million in cash and cash equivalents.
Non-GAAP Information
EBITDA, Adjusted EBITDA, and their corresponding per-share
equivalents 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 (benefit from) income taxes, and
depreciation and amortization. EBITDA per diluted share is defined
as EBITDA divided by TESSCO’s diluted weighted average shares
outstanding. Adjusted EBITDA is EBITDA as defined above, but also
adds stock-based compensation and goodwill impairments.
Management believes these EBITDA measures 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 diluted share are not recognized terms under GAAP, and
EBITDA and Adjusted EBITDA do 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 actual GAAP to non-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 customers in the wireless infrastructure
ecosystem. The Company was founded more than 40 years ago with a
commitment to deliver industry-leading products, knowledge,
solutions, and customer service. TESSCO supplies products to 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
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical facts
contained herein, including statements regarding our future results
of operations and financial position, strategy and plans and future
prospects, and our expectations for future operations, are
forward-looking statements. 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 March 27, 2022, 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: the parties’ ability to meet
expectations regarding the timing and completion of the recently
announced merger; the occurrence of any event, change or other
circumstance that would give rise to the termination of the merger
agreement and the fact that certain terminations of the merger
agreement require the Company to pay a termination fee of
$4,000,000; the failure to satisfy each of the conditions to the
consummation of the merger; the disruption of management’s
attention from ongoing business operations due to the merger; the
effect of the announcement of the merger on the Company’s
relationships with its customers, as well as its operating results
and business generally; the outcome of any legal proceedings
related to the merger; retention of employees of the Company
following the announcement of the merger; the fact that the
Company’s stock price may decline significantly if the merger is
not completed; the impact and results of any new or continued
activism activities by activist investors; termination or
non-renewal of limited duration agreements or arrangements with our
suppliers, which are typically terminable by either party upon
several months or otherwise relatively short notice; loss of
significant customers, suppliers or other relationships, or
reduction of customer business or product availability; loss of
customers or suppliers either directly or indirectly as a result of
consolidation among large wireless service carriers and others
within the wireless communications industry; deterioration in the
strength of our customers' or suppliers' business; negative or
adverse economic conditions, including those adversely affecting
consumer confidence or consumer or business spending or otherwise
adversely impacting our suppliers 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,
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; our inability to maintain or upgrade our technology or
telecommunication systems without undue cost, incident or delay;
system security or data protection breaches and exposure to
cyber-attacks, and the cost associated with ongoing efforts to
maintain cyber-security measures and to meet applicable compliance
standards; damage or destruction of our distribution or other
facilities; prolonged or otherwise unusual quality or performance
control problems; technology changes in the wireless communications
industry or technological failures, which could lead to significant
inventory obsolescence or devaluation 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 suppliers and customers; our
inability to access capital and obtain or retain 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; health epidemics or pandemics or other outbreaks or
events, or national or world events or disasters beyond our
control; changes in political and regulatory conditions, including
tax and trade policies; 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.
The above list should not be construed as exhaustive and should
be read in conjunction with our other disclosures, including but
not limited to the risk factors described 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. Other risks may be described from
time to time in our filings made under the securities laws. New
risks emerge from time to time. It is not possible for our
management to predict all risks.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements. In
addition, neither we nor any other person assumes responsibility
for the accuracy and completeness of any of these forward-looking
statements. Any forward-looking statement made by us in this press
release speaks only as of the date on which it is made. We disclaim
any duty to update any of these forward-looking statements after
the date of this press release to confirm these statements to
actual results or revised expectations.
TESSCO Technologies
Incorporated
Consolidated Statements of
Income (Loss) (Unaudited)
Fiscal Quarters Ended
Year Ended
March 26,
March 27,
December 25,
March 26,
March 27,
2023
2022
2022
2023
2022
Revenues
$
104,200,900
$
101,590,100
$
114,879,700
$
452,064,700
$
417,544,800
Cost of goods sold
83,365,700
82,655,900
91,188,600
360,980,100
339,507,900
Gross profit
20,835,200
18,934,200
23,691,100
91,084,600
78,036,900
Selling, general and
administrative expenses
25,351,800
19,504,800
22,715,800
93,198,100
81,543,400
Operating income (loss)
(4,516,600
)
(570,600
)
975,300
(2,113,500
)
(3,506,500
)
Interest expense, net
1,068,500
373,500
516,400
2,227,700
876,900
Income (loss) from continuing
operations before provision for (benefit from) income taxes
(5,585,100
)
(944,100
)
458,900
(4,341,200
)
(4,383,400
)
Provision for (benefit from)
income taxes
53,600
94,900
34,200
5,800
(1,071,300
)
Net income (loss) from continuing
operations
$
(5,638,700
)
$
(1,039,000
)
$
424,700
$
(4,347,000
)
$
(3,312,100
)
Income (loss) from discontinued
operations, net of taxes
—
(576,600
)
—
—
611,300
Net income (loss)
$
(5,638,700
)
$
(1,615,600
)
$
424,700
$
(4,347,000
)
$
(2,700,800
)
Basic earnings (loss) per
share
Continuing operations
$
(0.61
)
$
(0.12
)
$
0.05
$
(0.47
)
$
(0.37
)
Discontinued operations
$
—
$
(0.06
)
$
—
$
—
$
0.07
Consolidated operations
$
(0.61
)
$
(0.18
)
$
0.05
$
(0.47
)
$
(0.30
)
Diluted earnings (loss) per
share
Continuing operations
$
(0.61
)
$
(0.12
)
$
0.05
$
(0.47
)
$
(0.37
)
Discontinued operations
$
—
$
(0.06
)
$
—
$
—
$
0.07
Consolidated operations
$
(0.61
)
$
(0.18
)
$
0.05
$
(0.47
)
$
(0.30
)
Basic weighted-average common
shares outstanding
9,226,552
8,978,777
9,199,494
9,160,805
8,927,837
Effect of dilutive options and
other equity instruments
—
—
17,654
—
—
Diluted weighted-average common
shares outstanding
9,226,552
8,978,777
9,217,148
9,160,805
8,927,837
TESSCO Technologies
Incorporated
Consolidated Balance Sheets
(Unaudited)
March 26,
March 27,
2023
2022
ASSETS
Current assets:
Cash and cash equivalents
$
777,200
$
1,754,000
Trade accounts receivable,
net
82,999,700
75,546,300
Product inventory, net
73,353,700
55,945,300
Income taxes receivable
3,685,100
4,293,400
Prepaid expenses and other
current assets
3,611,300
2,961,700
Total current assets
164,427,000
140,500,700
Property and equipment, net
10,465,300
10,835,900
Intangible assets, net
40,757,100
30,595,600
Income taxes receivable,
non-current
—
3,118,600
Lease asset - right of use
7,866,000
8,910,400
Other long-term assets
9,085,000
8,552,100
Total assets
$
232,600,400
$
202,513,300
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Trade accounts payable
$
69,771,900
$
65,254,900
Payroll, benefits and taxes
3,824,300
5,230,500
Income and sales tax
liabilities
1,389,800
1,188,100
Accrued expenses and other
current liabilities
5,336,100
1,455,500
Current portion of lease
liability
2,519,800
2,566,300
Current portion of long-term
debt
350,100
340,300
Total current liabilities
83,192,000
76,035,600
Deferred tax liabilities
133,500
145,600
Revolving line of credit
64,191,600
36,914,600
Non-current portion of lease
liability
5,513,900
6,586,200
Long-term debt
5,772,700
6,155,000
Other non-current liabilities
680,500
753,200
Total liabilities
159,484,200
126,590,200
Shareholders’ equity:
Common stock
108,300
105,900
Additional paid-in capital
70,861,900
69,166,100
Treasury stock
(287,300
)
(129,200
)
Retained earnings
2,433,300
6,780,300
Total shareholders’ equity
73,116,200
75,923,100
Total liabilities and
shareholders’ equity
$
232,600,400
$
202,513,300
TESSCO Technologies
Incorporated
Reconciliation of Net Income
(Loss) to Earnings Before Interest, Taxes, Depreciation, and
Amortization (EBITDA) from Continuing Operations
(Unaudited)
Fiscal Quarters Ended
Year Ended
March 26,
March 27,
December 25,
March 26,
March 27,
2023
2022
2022
2023
2022
Net income (loss) from continuing
operations
$
(5,638,700
)
$
(1,039,000
)
$
424,700
$
(4,347,000
)
$
(3,312,100
)
Add:
Provision for (benefit from)
income taxes
53,600
94,900
34,200
5,800
(1,071,300
)
Interest expense, net
1,068,500
373,500
516,400
2,227,700
876,900
Depreciation and amortization
2,271,700
606,500
517,600
3,852,400
2,484,900
EBITDA
$
(2,244,900
)
$
35,900
$
1,492,900
$
1,738,900
$
(1,021,600
)
Add:
Stock-based compensation
302,800
614,200
266,100
1,099,300
1,338,900
Adjusted EBITDA
$
(1,942,100
)
$
650,100
$
1,759,000
$
2,838,200
$
317,300
EBITDA per diluted
share
$
(0.24
)
$
0.00
$
0.16
$
0.19
$
(0.11
)
Adjusted EBITDA per diluted
share
$
(0.21
)
$
0.07
$
0.19
$
0.31
$
0.04
TESSCO Technologies
Incorporated
Supplemental Results Summary
(in thousands) (Unaudited)
Three Months Ended
March 26,
March 27,
December 25,
Growth Rates Compared
to
2023
2022
2022
Prior Year Period
Prior Period
Market Revenues
Carrier
$
46,440
$
44,393
$
48,627
4.6
%
(4.5)
%
Commercial
57,761
57,197
66,253
1.0
%
(12.8)
%
Total revenues
$
104,201
$
101,590
$
114,880
2.6
%
(9.3)
%
Market Gross Profit
Carrier
$
8,799
$
4,620
$
6,354
90.5
%
38.5
%
Commercial
12,036
14,314
17,337
(15.9)
%
(30.6)
%
Total gross profit
$
20,835
$
18,934
$
23,691
10.0
%
(12.1)
%
% of revenues
20.0
%
18.6
%
20.6
%
Year Ended
March 26,
March 27,
Growth Rates
2023
2022
Compared to Prior Year
Period
Market Revenues
Carrier
$
194,184
$
180,740
7.4
%
Commercial
257,881
236,805
8.9
%
Total revenues
$
452,065
$
417,545
8.3
%
Market Gross Profit
Carrier
$
28,291
$
20,985
34.8
%
Commercial
62,794
57,052
10.1
%
Total gross profit
$
91,085
$
78,037
16.7
%
% of revenues
20.1
%
18.7
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230526005022/en/
TESSCO Technologies Incorporated Aric Spitulnik
Chief Financial Officer 410-229-1419 spitulnik@tessco.com
David Calusdian Sharon Merrill Associates, Inc.
617-542-5300 TESS@investorrelations.com
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