Tessco Technologies (TESS) Tops Q2 EPS by 31c, Revenues Miss

Tessco Technologies (NASDAQ: TESS) reported Q2 EPS of ($0.03), $0.31 better than the analyst estimate of ($0.34). Revenue for the quarter came in at $119.7 million versus the consensus estimate of $120.3 million.

“We made solid progress on our near-term profit improvement initiatives in the second fiscal quarter and took concrete steps to transform the business in accordance with our three-pillar strategy,” said President and Chief Executive Officer Sandip Mukerjee. “During the quarter, we maintained our focus on taking aggressive actions to drive higher margins, reduce costs and effectively manage inventory. As a result, we achieved the best quarterly bottom-line performance in a year, improved gross profit in both business segments on a sequential basis, and increased overall gross margin by 30 basis points year over year, despite lower sales due to continued headwinds from the economic downturn and COVID-19.

“While sales in the public carrier market were challenged due to pandemic-related delays, we continue to capture market share in this ecosystem and better position Tessco to capitalize on new wireless technologies including 5G, private LTE/CBRS and IoT. Specifically, we are encouraged by the early results of our higher-margin Ventev brand in the Public Carrier ecosystem with enclosures for the monitoring of tower equipment. Industrializing our Ventev operations and scaling our capabilities positions us at the leading edge as an industry innovator.

“We are realizing the benefits of our strategic execution and investment initiatives, as evidenced by higher sales of Ventev products in our VAR business and increased sales through the Tessco.com channel. As a result of the higher-margin Ventev and Tessco.com VAR revenues, combined with a positive Public Carrier sales mix, our overall Commercial Segment gross margin increased 220 basis points sequentially.

“We are positioning the business to capitalize on the once-in-a-generation opportunity resulting from the unprecedented and concurrent rollout of new wireless technologies. We are taking bold actions to improve the performance of our VAR and Integrator business, including investing in our sales teams, reengaging with the end-user community and reestablishing our relevance on a sector-by-sector basis. The Board and management team have been focused on turning the business around and returning it to profitable growth and modernizing our IT and other operating systems. While we recognize that there is more to be done, the entire team is working with urgency to transform the Company by executing our three-pillar strategy and drive value for shareholders.”

Business Outlook

The Company expects sequential revenue growth in the Commercial Segment in the third quarter, but with a return to more historical public carrier market gross margins due to product mix.

During the second quarter the Company recognized benefits associated with changes in estimates related to accounts receivable and inventory reserves that the Company would not expect to recur. Additionally, the Company expects to incur incremental legal and other costs associated with responses to the recently initiated consent solicitation.

“We are encouraged by the progress we made in the second quarter on our strategy and operating results,” said Mukerjee. “As we look ahead to the second half of the year, we are focused on continuing to drive growth and profitability improvement as we execute on our three-pillar strategy. While we saw sequential improvements in Retail in the second quarter, we will continue to manage the decline of that business to maximize profitability. For the Commercial business, given the current macroeconomic outlook for the remainder of the year, we expect an easing of the project delays in the second half of Tessco’s fiscal year, and additional growth coming from 5G in calendar year 2021. Overall, we are uniquely positioned to capitalize on the exponential growth, technological change and resultant complexity that will continue to drive our industry.”

Forecasting future results or trends is inherently difficult for any business, and actual results or trends may differ materially from those forecasted. The Business Outlook published in this press release reflects only the Company’s current best estimate and it assumes no obligation to update the information contained in this press release, including the Business Outlook, at any time.

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

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