Earnings per Share Grow 82%
HUNT VALLEY, Md., Jan. 17 /PRNewswire-FirstCall/ -- TESSCO Technologies Incorporated (NASDAQ:TESS), a value-added supplier of the product solutions needed to design, build, run, maintain and use wireless systems, today reported earnings for the third quarter ended December 24, 2006.
Chairman, President and CEO Robert B. Barnhill commented, "I am pleased to announce our 11th consecutive quarter of sequential commercial revenue growth. We have continued our momentum into the third quarter, making excellent progress on the achievement of our imperatives, resulting in an 82 percent growth in diluted earnings per share and a 42 percent growth in total revenues, both over last year's third quarter. Diluted earnings per share were $0.31 for the third quarter, as compared to $0.17 for last year's third quarter, and $0.29 for the second quarter, all as adjusted to account for the recent three-for-two stock split in the form of a stock dividend." Progress on the Imperatives for Fiscal Year 2007 Made During the Third Quarter: Imperative # 1: Increase quality revenues ... selling more commercial and government customers, more product categories, more often.
-- Total revenues grew 42 percent compared to the third quarter last
year and 14 percent sequentially over the previous quarter.
-- Monthly buyers grew 11 percent compared to the third quarter last
year and 2 percent sequentially.
Imperative # 2: Increase diversification and reduce concentration risk ... reducing the dependence on any one customer, supplier, facility and/or individual.
-- We continue to diversify and broaden our business and are less
dependent on large cellular carrier-dominated infrastructure
expenditures. Our public carrier and network operator revenue during
the third quarter was 14 percent of our total revenues as compared to
22 percent in last year's third quarter.
-- While cellular accessories and repair components drove a large
portion of our year-over-year growth during the quarter, we also
experienced strong growth of infrastructure product sales to value-
added resellers, technicians and governments.
Imperative # 3: Grow margins ... by executing flawlessly with high productivity.
-- Gross profit margins in our network infrastructure and commercial and
government mobile devices and accessories lines of business increased;
however, these increases were offset by a decrease in our
installation, test and maintenance line of business as further
discussed below in the Financial Highlights section. Overall gross
profit margin was 24.4 percent this quarter compared with 25.3 percent
in the same quarter last year and 25.3 percent last quarter.
-- Our operating expenses as a percent of revenue decreased to 22.1
percent compared to 23.2 percent in last year's third quarter and 22.6
percent last quarter. However, as a result of the gross profit margin
decline, our net income as a percentage of revenue reached 1.3 percent
compared to 1.2 percent in last year's third quarter and 1.6 percent
in the second quarter this year.
Imperative # 4: Improve returns ... through gains in margins and asset turnover.
-- Return on average assets was 4.9 percent compared to 3.6 percent in
the third quarter of last year and 5.4 percent last quarter. The
sequential reduction in return on average assets was primarily due to
strong sales in the second half of our quarter, resulting in a $9.2
million increase in our trade accounts receivable.
-- Return on average equity was 13.0 percent compared to 7.0 percent in
the third quarter of last year and 12.2 percent last quarter, driven
by our expanded stock buyback program during fiscal 2007.
Imperative # 5: Recruit, retain, and develop exceptional leaders and contributors ... to assure the capacity, commitment and capability of achieving our goals, today and tomorrow.
-- During the third quarter, we continued our dynamic, multi-layered
"Get Wired in Wireless - TESSCO ... the Place to Build a Career"
media campaign utilizing different marketing techniques to broaden
our outreach for recruiting the talent that should continue to fuel
our growth.
-- During fiscal year 2007, we have also expanded our extensive team
member training programs to ensure that we continue to develop
exceptional leaders and contributors to help us accomplish our goals
today and in the future.
Financial Highlights for the Quarter: -- Revenues for the quarter totaled $134.7 million, an increase of 42
percent over the prior-year quarter due to a 43 percent increase in
commercial and government revenues, minimally offset by a 9 percent
decrease in consumer revenues.
-- Gross profits for the quarter totaled $32.9 million, an increase of
37 percent over the prior-year quarter, due to a 41 percent increase
in commercial and government gross profits, partially offset by a 38
percent decrease in consumer gross profits.
-- Net income for the quarter was $1.8 million, or $0.31 per diluted
share, compared with $1.1 million and $0.17 per diluted share for the
third quarter of last fiscal year. Per share numbers account for the
three-for-two stock split in the form of a stock dividend issued on
November 29, 2006.
-- Within the commercial and government market, third quarter revenues
from the self-maintained user, government and reseller channel grew
58 percent year-over-year, while revenues from the public carrier and
network operator market showed a 7 percent decrease for the same
period.
-- Network infrastructure product sales and gross profits increased in
the third quarter year-over-year by 7 percent and 15 percent,
respectively, primarily driven by sales in WLAN products and radio
frequency products. The increases in WLAN were largely a result of
our acquisition of TerraWave and GigaWave in late April 2006.
-- Mobile devices and accessories product sales and gross profits in our
commercial and government markets increased year-over-year in the
third quarter by 92 percent and 94 percent, respectively, primarily
as a result of increased sales of accessory products to carrier and
independent retail customers.
-- Mobile devices and accessories product sales and gross profits in our
consumer market decreased 9 percent and 38 percent, respectively, as
compared to the same quarter last year.
-- Installation, test and maintenance product sales and gross profits
increased year-over-year by 40 percent and 10 percent, respectively,
primarily driven by large sales of repair components related to our
expanded major repair components relationship. As we discussed last
quarter, we expected that revenues and gross profits from sales of
these repair components would not continue in the third and fourth
quarters at the levels experienced in the first six months of the
fiscal year. Although gross profits declined consistent with our
expectations, revenues from the sales of these repair components were
higher than we expected because more revenue was accounted for on a
gross basis versus a net basis.
Financial Highlights Year-to-Date: -- Revenues for the first nine months of fiscal year 2007 totaled $365.3
million, down 4 percent over the first nine months of fiscal year
2006, notwithstanding a 96 percent decrease in consumer revenues
related to the transitioned affinity relationship, which was largely
offset by a 47 percent increase in commercial and government sales.
-- Notwithstanding the decrease in revenues, total gross profits for the
first nine months of fiscal year 2007 grew by 16 percent over the
prior-year period. Gross profits from commercial and government
sales increased 43 percent, while gross profits from consumer sales
decreased 86 percent, in each case for the first nine months this
year as compared to last.
-- Net income for the first nine months of fiscal year 2007 was $5.5
million, or $0.89 per diluted share, compared to $4.1 million and
$0.63 per diluted share for the same period of fiscal year 2006. Per
share numbers account for the three-for-two stock split in the form
of a stock dividend issued on November 29, 2006.
Stock Dividend/Split
On November 29, 2006, we issued a stock dividend in order to affect a three-for-two split of our common stock. Each holder of the Company's common stock on the close of business November 15, 2006 received a stock dividend of one additional share for every two outstanding shares held. The number of authorized shares remains at 15 million.
Stock Buyback Program The Company continues to believe that the repurchase of shares, when appropriate, is an excellent use of funds to enhance long-term shareholder value while potentially providing increased liquidity to shareowners.
During the third quarter, and prior to the stock split, the Company repurchased 54,100 shares of its common stock (81,150 shares on a split adjusted basis) for approximately $1.7 million. No shares were repurchased during the quarter after the stock split. All purchases have been funded through borrowings under the Company's revolving credit facility and through cash from operations.
On a split adjusted basis, 1,950,000 shares have been authorized for repurchase under the stock buyback program and 1,794,867 shares have been repurchased. Up to 155,133 shares now remain available for repurchase. The total cost of the buyback program is approximately $23.4 million, or $13.05 per share on a split adjusted basis. On December 24, 2006, at the close of the third quarter, approximately 5.3 million shares of the Company's common stock were outstanding on a split adjusted basis.
Business Outlook The following statements and the statements above made by Robert Barnhill as to anticipated results and future prospects are based on current expectations and analysis. These statements are forward-looking, and actual results may differ materially.
At this time, TESSCO has elected to update its annual guidance for fiscal year 2007. The previous guidance was for earnings of $1.07 to $1.17 per share this fiscal year on a split adjusted basis. Considering the nine-month earnings per share of $0.89, we now believe that earnings will be in the range of $1.15 to $1.22 per share for the 2007 fiscal year.
Our revised guidance is based on the progress of the business generation and operating productivity initiatives underway, and assumes that these trends will continue. We expect that the repair components business within our installation, test and maintenance line of business will continue to decline to gross profit levels similar to those experienced during the first nine months of fiscal year 2006.
A conference call will be held on January 18, 2007, at 10:00 a.m. ET to discuss the financial results for the third quarter of fiscal year 2007. The conference call will also be available via Web cast by visiting: http://www.tessco.com/go/pressroom.
TESSCO expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, TESSCO may reiterate the Business Outlook published in this press release. At the same time, TESSCO will keep this press release and Business Outlook publicly available on its Web site (http://www.tessco.com/). However, 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.
About TESSCO TESSCO Technologies Incorporated is a value-added supplier of the product solutions needed to design, build, run, maintain and use wireless systems. TESSCO is committed to delivering, fast and complete, the product needs of wireless system operators, program managers, contractors, resellers, and self- maintained utility, transportation, enterprise and government organizations. As Your Total Source(R) supplier of mobile and fixed-wireless network infrastructure products, mobile devices and accessories, and installation, test and maintenance equipment and supplies, TESSCO assures customers of on- time availability, while streamlining their supply chain process and lowering inventories and total costs. To learn more, please visit TESSCO.com.
Forward-Looking Statements This press release may contain forward-looking statements. 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 which are typically terminable by either party upon several months 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 service carriers and others within the wireless communications industry; the strength of the customers', vendors' and affinity partners' business; economic conditions that may impact customers' ability to fund or pay for the purchase of our products and services, including credit risk; 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; failure of our information technology system or distribution system; technology changes in the wireless communications industry, 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 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; 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; our inability to protect certain intellectual property, including systems and technologies on which we rely; and our inability to hire or retain for any reason our key professionals, management and staff.
TESSCO Technologies Incorporated
Consolidated Statements of Income Fiscal Quarters Ended
December 24, December 25, September 24,
2006 2005 2006
(unaudited) (unaudited) (unaudited) Revenues $134,716,700 $94,811,900 $118,655,700 Cost of goods sold 101,838,200 70,849,000 88,625,800 Gross profit 32,878,500 23,962,900 30,029,900 Selling, general and
administrative expenses 29,730,700 22,004,200 26,855,800 Income from operations 3,147,800 1,958,700 3,174,100 Interest, net 323,800 125,600 180,500
Income before
provision for
income taxes 2,824,000 1,833,100 2,993,600 Provision for income taxes 1,059,100 714,900 1,137,600 Net income $1,764,900 $1,118,200 $1,856,000 Basic earnings per share $0.33 $0.18 $0.30 Diluted earnings per share $0.31 $0.17 $0.29 Basic weighted average
shares outstanding 5,320,600 6,281,300 6,155,300
Diluted weighted average
shares outstanding 5,628,800 6,394,500 6,338,000
Nine Months Ended
December 24, December 25,
2006 2005
(unaudited) (unaudited) Revenues $365,312,700 $380,768,000 Cost of goods sold 274,319,200 302,416,400 Gross profit 90,993,500 78,351,600 Selling, general and
administrative expenses 81,554,600 71,507,500 Income from operations 9,438,900 6,844,100 Interest, net 659,600 192,700 Income before provision
for income taxes 8,779,300 6,651,400 Provision for income taxes 3,305,000 2,594,000 Net income $5,474,300 $4,057,400 Basic earnings per share $0.93 $0.64 Diluted earnings per share $0.89 $0.63 Basic weighted average
shares outstanding 5,915,500 6,331,200 Diluted weighted average
shares outstanding 6,126,800 6,420,200
TESSCO Technologies Incorporated
Consolidated Balance Sheets December 24, March 26,
2006 2006
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $-- $2,286,900
Trade accounts receivable, net 53,634,900 43,576,500
Product inventory 59,883,700 47,615,700
Deferred tax asset 2,396,000 2,396,000
Prepaid expenses and other current assets 4,009,500 2,799,200
Total current assets 119,924,100 98,674,300 Property and Equipment, Net 24,252,100 24,619,800
Goodwill, Net 4,093,700 2,452,200
Other Long-Term Assets 2,477,300 1,054,100
Total assets $150,747,200 $126,800,400 LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $68,704,700 $44,984,000
Accrued expenses and other
current liabilities 12,595,600 7,543,400
Revolving credit facility 5,629,400 --
Current portion of long-term debt 355,300 442,500
Total current liabilities 87,285,000 52,969,900 Deferred Tax Liability 2,785,300 2,785,300
Long-Term Debt, Net of Current Portion 4,292,500 4,559,400
Other Long-Term Liabilities 1,400,400 1,379,000
Total liabilities 95,763,200 61,693,600 Shareholders' Equity:
Preferred stock -- --
Common stock 68,400 49,600
Additional paid in capital 26,904,500 24,748,700
Treasury stock, at cost (27,251,000) (9,521,100)
Retained earnings 55,238,500 49,764,200
Accumulated other comprehensive income 23,600 65,400
Total shareholders' equity 54,984,000 65,106,800 Total liabilities and
shareholders' equity $150,747,200 $126,800,400 TESSCO Technologies Incorporated
Supplemental Revenue and Gross Profit Results Summary (Amounts in Thousands) Mobile Installation,
Network Devices and Test and
Infrastructure Accessories Maintenance Total Quarter Ended December 24, 2006:
Commercial/Government Revenue:
Public Carriers and
Network Operators $14,965 $663 $3,434 $19,062
User, Governments and
Resellers 29,905 62,805 20,868 113,578
Total Commercial/Government
Revenue 44,870 63,468 24,302 132,640
Consumer Revenue -- 2,077 -- 2,077
Total Revenue $44,870 $65,545 $24,302 $134,717 Commercial/Government Gross Profit:
Public Carriers and
Network Operators $3,413 $199 $856 $4,468
User, Governments and
Resellers 7,445 15,045 5,140 27,630
Total Commercial/Government
Gross Profit 10,858 15,244 5,996 32,098
Consumer Gross Profit -- 780 -- 780
Total Gross Profit $10,858 $16,024 $5,996 $32,878 Change from the Quarter Ended December 25, 2005:
Commercial/Government Revenue:
Public Carriers and
Network Operators (0.9%) (27.4%) (25.0%) (7.4%)
User, Governments and
Resellers 11.0% 94.9% 63.4% 57.9%
Total Commercial/Government
Revenue 6.7% 91.6% 40.1% 43.4%
Consumer Revenue -- (9.2%) -- (9.2%)
Total Revenue 6.7% 85.1% 40.1% 42.1% Commercial/Government Gross Profit:
Public Carriers and
Network Operators (5.6%) (17.4%) (22.1%) (9.9%)
User, Governments and
Resellers 28.0% 98.0% 18.7% 55.7%
Total Commercial/Government
Gross Profit 15.1% 94.5% 10.5% 41.4%
Consumer Gross Profit -- (38.3%) -- (38.3%)
Total Gross Profit 15.1% 76.0% 10.5% 37.2% Change from the Quarter Ended September 24, 2006:
Commercial/Government Revenue:
Public Carriers and
Network Operators 26.1% 10.0% 13.9% 23.1%
User, Governments and
Resellers (4.8%) 23.1% 10.0% 12.0%
Total Commercial/Government
Revenue 3.7% 23.0% 10.5% 13.5%
Consumer Revenue -- 16.9% -- 16.9%
Total Revenue 3.7% 22.8% 10.5% 13.5% Commercial/Government Gross Profit:
Public Carriers and
Network Operators 18.2% 5.3% 8.2% 15.5%
User, Governments and
Resellers (4.2%) 38.7% (23.5%) 9.1%
Total Commercial/Government
Gross Profit 1.9% 38.1% (20.1%) 9.9%
Consumer Gross Profit -- (5.7%) -- (5.7%)
Total Gross Profit 1.9% 35.1% (20.1%) 9.5% TESSCO Technologies Incorporated
Supplemental Revenue and Gross Profit Results Summary (Amounts in Thousands) Mobile Installation,
Network Devices and Test and
Infrastructure Accessories Maintenance Total Nine Months Ended December 24, 2006:
Commercial/Government Revenue:
Public Carriers and
Network Operators $39,166 $2,051 $10,757 $51,974
User, Governments and
Resellers 86,640 154,932 66,396 307,968
Total Commercial/Government
Revenue 125,806 156,983 77,153 359,942
Consumer Revenue -- 5,371 -- 5,371
Total Revenue $125,806 $162,354 $77,153 $365,313 Commercial/Government Gross Profit:
Public Carriers and
Network Operators $9,103 $603 $2,600 $12,306
User, Governments and
Resellers 20,375 34,699 21,259 76,333
Total Commercial/Government
Gross Profit 29,478 35,302 23,859 88,639
Consumer Gross Profit -- 2,354 -- 2,354
Total Gross Profit $29,478 $37,656 $23,859 $90,993 Change from the Nine Months Ended December 25, 2005:
Commercial/Government Revenue:
Public Carriers and
Network Operators (10.1%) (7.7%) (15.7%) (11.3%)
User, Governments and
Resellers 19.7% 97.0% 85.7% 64.9%
Total Commercial/Government
Revenue 8.5% 94.2% 59.0% 46.7%
Consumer Revenue -- (96.0%) -- (96.0%)
Total Revenue 8.5% (24.9%) 59.0% (4.1%) Commercial/Government Gross Profit:
Public Carriers and
Network Operators (11.0%) (1.0%) (14.5%) (11.3%)
User, Governments and
Resellers 22.4% 77.8% 79.6% 59.0%
Total Commercial/Government
Gross Profit 9.7% 75.4% 60.3% 43.3%
Consumer Gross Profit -- (85.7%) -- (85.7%)
Total Gross Profit 9.7% 2.9% 60.3% 16.1%
DATASOURCE: TESSCO Technologies Incorporated CONTACT: David Young, Chief Financial Officer, TESSCO Technologies Incorporated, +1-410-229-1380, Web site: http://www.tessco.com/
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