Tessco Technologies (TESS) Reports Q4 EPS Loss of $1.65; Suspends Dividend

Tessco Technologies (NASDAQ: TESS) reported Q4 EPS of ($1.65), $1.60 worse than the analyst estimate of ($0.05). Revenue for the quarter came in at $128.2 million versus the consensus estimate of $128.86 million.

“The health and safety of our employees, their families, our customers and suppliers are our primary focus during this unprecedented time,” said President and Chief Executive Officer Sandip Mukerjee. “While the majority of our workforce is able to work remotely, we are taking every possible action to maintain safe working conditions for our employees in our distribution centers, as we continue to operate as an essential component of the wireless telecom supply chain. We are grateful for the dedication and hard work of the entire Tessco team to keep our business running safely as we navigate the impact of the evolving COVID-19 pandemic.

“The performance of our Retail segment during this past year has been disappointing, and was further affected in the fourth quarter by the significant impact of COVID-19 on the global retail market,” said Mukerjee. “COVID-19 has caused retail store closures and/or reduced foot traffic in most of our retail customer locations. As a consequence, we experienced significantly lower revenues and margins in our Retail segment. This has resulted in an increase in inventory, returns and accounts receivable reserves to account for the uncertainty as to when the retail stores will return to pre-pandemic purchasing levels. To manage the retail business in this environment, we are taking aggressive actions, including reducing our fulfillment and delivery expenses, further tightening our inventory management discipline, implementing strategies to reduce excess and obsolete inventory levels, and reducing payroll expense in our Retail segment. We expect these actions will further strengthen the balance sheet and reduce the cash burn rate in our retail operations during this time. With continued uncertainty expected in our retail business, our capital and investment decisions are strongly focused on our more profitable Commercial segment.

“The Commercial segment continues to perform well, with our Public Carrier market achieving record revenues in the fourth quarter,” added Mukerjee. “Our fourth-quarter Commercial segment revenues were flat year-over-year, with growth in our Public Carrier market offset by a decline in the COVID-impacted VAR and Integrator market. We continue to win market share in the Public Carrier market and expect to see growth in this business in fiscal year 2021, absent significant interruptions caused by the COVID-19 situation. We did not see any major impact from COVID-19 on the Public Carrier market in the fourth quarter. In addition, at this time, while we do see some build delays, we do not expect a significant impact in fiscal 2021 given the plans and needs of the carriers. However, we will be closely watching the Tier 1 Carriers to monitor how the COVID-19 situation impacts build plans.

“Our fourth-quarter VAR and Integrator market revenue was down slightly year over year with COVID-19 having an effect on our results,” said Mukerjee. “We expect that COVID-19 will continue to affect this business for the foreseeable future, and this makes forecasting for this market difficult. The impact of COVID-19 has been primarily on the oil and gas industry and on projects requiring access to buildings and venues. At the same time, we are seeing encouraging results from our strategic actions to improve the performance of this business over the long term. We are re-engaging with the end-user community on a sector-by-sector basis and re-establishing our relevancy through our product and solutions offering. We began by focusing on the utilities sector and have now seen two consecutive quarters of year-over-year growth in that area.

“We continue to maintain a healthy balance sheet,” added Mukerjee. “We ended the year with a $26 million outstanding balance on our line of credit, down from $29 million at the end of the third quarter. While we expect some timing-related ebbs and flows on our balance sheet in this new fiscal year, we will bring down the levels of inventory and accounts receivable associated with our Retail segment. Additionally, while we were not at this time eligible for federal loans, certain provisions of the CARES Act should allow us to realize approximately $5 million in tax refunds in fiscal 2021.

“During the fourth quarter, we recorded a goodwill impairment, removing all remaining goodwill from our balance sheet.

“While we are taking actions designed to cut costs and maintain tight controls on our balance sheet, we continue to advance our strategic initiatives by investing in our Ventev business, our commercial sales and product teams, our software and service initiatives, and technology enhancements,” said Mukerjee. “In line with key initiatives I laid out last quarter, we have announced the appointments of Thad Lowe as the General Manager for our Ventev business and Eddie Franklin as SVP of Sales. Both executives are seasoned professionals with extensive and complementary backgrounds, and we look forward to their positive contributions to sales and product development in the coming quarters.

“Despite the challenges of COVID-19 and our performance in the Retail segment, Tessco is uniquely positioned to capitalize on the exponential growth, technological change and resultant complexity that will continue to drive our industry. As we enter fiscal 2021, we continue to focus on taking actions to improve profitability over the long term. The COVID-19 pandemic currently makes forecasting results for fiscal year 2021 very difficult. At the same time, we are optimistic that we will grow our carrier market business in fiscal 2021, that our business fundamentals will get stronger as the year progresses and that we will be in a much better position to return to profitability as we enter fiscal 2022,” concluded Mukerjee.

Dividend

The Board of Directors has suspended Tessco’s dividend to further strengthen its cash position as the Company continues to monitor and address the effects of the COVID-19 pandemic.

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

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