Tessco Technologies (TESS) Misses Q3 EPS by 72c, Revenues Miss; Announces Dividend Reduction

Tessco Technologies (NASDAQ: TESS) reported Q3 EPS of ($0.59), $0.72 worse than the analyst estimate of $0.13. Revenue for the quarter came in at $139.6 million versus the consensus estimate of $150 million.

• Quarterly Revenues of $139.6 Million
• Reprioritizes Capital Allocation to Accelerate Growth
• Reduces Dividend to $0.02 Per Share

“This quarter’s weaker-than-expected results were primarily driven by the continuing softness in our Retail segment,” said Sandip Mukerjee, President and Chief Executive Officer. “The retail business has experienced significant declines in the past year, including the loss of the large customer that we had discussed earlier this year. As a result, during the quarter we recorded a goodwill impairment charge of $2.6 million, representing the entirety of goodwill related to the Retail segment, and booked a larger-than-normal cost of goods sold adjustment for excess and obsolete inventory. We are taking actions to increase retail profitability by focusing on the efficiency and effectiveness of our new business development efforts, improving our inventory management and developing additional sell through channels. We already have been successful in mitigating the impact of tariffs on Ventev mobility products.

“The Commercial segment, which we believe is well positioned for long-term profitability, returned to year-over-year revenue growth this quarter, driven by a 13% year-over-year increase in public carrier market sales, where we continue to grow market share.

“During the quarter, we completed a strategic study of the business with the goal of best utilizing all of the Company’s assets and resources to enhance long-term shareholder value, with a particular focus on ensuring that we are well positioned to capitalize on unprecedented changes in the wireless ecosystem, driven by 5G, Wi-Fi 6 and CBRS. To take advantage of these opportunities, we are increasing investment in the technology and talent required to accelerate our long-term growth. Accordingly, the Board of Directors has reduced the dividend on our common stock this quarter, allowing us to invest in three primary business areas. First, we will more efficiently manage our core business. Second, we will leverage our innovative and profitable Ventev brand by expanding and improving our product roadmap. Finally, we will incorporate value-added and managed services into our offering in an effort to make Tessco more valuable to our customers and generate profitable revenue streams. We are nearing the finish of our long-term strategic plan development and look forward to sharing it with you as we head into fiscal 2021.

“When I joined in August, I believed that Tessco was uniquely positioned to capitalize on the exponential growth, technological change and resultant complexity driving our industry. Today I am confident that the moves we are undertaking will position us to optimize our role in that evolution.”

Dividend

The Board of Directors declared a quarterly cash dividend of $0.02 per common share payable on February 26, 2020 to common shareholders of record on February 12, 2020. This represents a decrease of 90% from the dividend of $0.20 paid in November 2019. During the third quarter, the Company conducted a strategic study of the business with the goal of ensuring that all of the Company’s assets and resources are being best utilized to enhance long-term shareholder value. As a result of that study, the Board is reallocating resources to increase investment in the technology and talent required to accelerate the Company’s long-term growth. Any future declaration of dividends, and the establishment of record and payment dates, is subject to future determinations of the Board of Directors.

For earnings history and earnings-related data on Tessco Technologies (TESS) click here.

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