TESSCO Technologies Incorporated (NASDAQ:TESS) is an architect and provider of innovative product and value chain solutions to support wireless systems. The company operates in two reportable segments: Carrier and Commercial. The Carrier segment primarily serves customers who build and maintain the infrastructure system and provide airtime service to individual subscribers, while the Commercial segment caters to value-added resellers, the government channel, and private system operator markets.
Business Overview
TESSCO's core business revolves around the distribution and marketing of a wide range of products that are classified into three categories: base station infrastructure, network systems, and installation, test, and maintenance. Base station infrastructure products are used to build, repair, and upgrade wireless telecommunication networks, while network systems products are utilized to build and upgrade computing and internet networks. The installation, test, and maintenance category comprises sophisticated analysis equipment, frequency-, voltage- and power-measuring devices, replacement parts, and an assortment of tools and hardware required by service technicians.The company's operations and office facilities are located in Hunt Valley, Maryland, and Reno, Nevada. Approximately 98% of TESSCO's sales are made to customers in the United States.
Financial Performance
For the fiscal year ended March 27, 2022, TESSCO reported annual revenue of $452,064,700. The company's annual net income for the same period was -$4,347,000. Operating cash flow for the fiscal year was -$11,959,000, and free cash flow was -$27,667,500.In the third quarter of fiscal year 2023, which ended on December 25, 2022, TESSCO reported total revenues of $114,880,000, an increase of 12.1% compared to the same quarter in the prior year. Gross profit for the quarter was $23,691,000, up 20.7% year-over-year. The company's Carrier segment reported revenues of $48,627,000, a 12.0% increase, while the Commercial segment generated revenues of $66,253,000, a 12.2% increase.
Gross profit margin in the third quarter improved to 20.6%, up from 19.1% in the same quarter last year. The increase was primarily attributable to a more favorable customer and product mix, as well as higher freight charges passed on to customers.
Selling, general, and administrative expenses increased by 17.1% or $3.3 million in the third quarter, primarily due to higher compensation and benefits costs and increased freight expenses. Net income for the quarter was $424,700, compared to $1,215,000 in the prior-year period.
For the first nine months of fiscal year 2023, TESSCO reported total revenues of $347,864,000, a 10.1% increase compared to the same period in the prior year. Gross profit increased by 18.9% to $70,249,000, with gross profit margin improving to 20.2% from 18.7% in the first nine months of fiscal 2022.
Liquidity
As of December 25, 2022, TESSCO had $3,271,800 in cash and cash equivalents. The company's current ratio was 1.98, and the quick ratio was 1.05, indicating a strong liquidity position.TESSCO has a secured revolving credit facility with Wells Fargo Bank, National Association, which was recently amended and restated in December 2022. The facility now provides for a maximum borrowing capacity of $105 million, with a $10 million Availability Block, effectively limiting the maximum borrowings to $95 million. As of December 25, 2022, the company had $61,584,000 in outstanding borrowings under the facility, leaving $33,416,000 available for future borrowings, subject to the Borrowing Base limitations and compliance with other terms.
The company's liquidity could be impacted by decreasing revenues and profits resulting from a decline in demand for its products or a reduction in capital expenditures by its customers, as well as the weakened financial conditions of its customers or suppliers.
Risks and Challenges
TESSCO operates in a competitive and fragmented wireless communications distribution industry, facing risks such as the termination or non-renewal of agreements with suppliers, the loss of significant customers or suppliers, and the impact of consolidation among larger wireless service carriers. The company's performance is also susceptible to changes in technology, regulatory conditions, and economic factors that could adversely affect its customers and suppliers.The company's ability to maintain relationships with its customers and suppliers is subject to competitive pressures and challenges, and depends on various factors that often differ for each relationship. TESSCO's success is also dependent on its ability to attract and retain key professionals, management, and staff.