Company Quick10K Filing
Tessco Technologies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 9 $161
10-Q 2020-02-07 Quarter: 2019-12-29
10-Q 2019-11-08 Quarter: 2019-09-29
10-Q 2019-08-02 Quarter: 2019-06-30
10-K 2019-06-11 Annual: 2019-03-31
10-Q 2019-02-08 Quarter: 2018-12-30
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-07-27 Quarter: 2018-07-01
10-K 2018-06-01 Annual: 2018-04-01
10-Q 2018-02-02 Quarter: 2017-12-24
10-Q 2017-11-03 Quarter: 2017-09-24
10-Q 2017-08-03 Quarter: 2017-06-25
10-K 2017-06-07 Annual: 2017-03-26
10-Q 2017-02-03 Quarter: 2016-12-25
10-Q 2016-11-04 Quarter: 2016-09-25
10-Q 2016-08-04 Quarter: 2016-06-26
10-K 2016-06-06 Annual: 2016-03-27
10-Q 2016-02-05 Quarter: 2015-12-27
10-Q 2015-11-06 Quarter: 2015-09-27
10-Q 2015-08-06 Quarter: 2015-06-28
10-K 2015-06-02 Annual: 2015-03-29
10-Q 2015-02-06 Quarter: 2014-12-28
10-Q 2014-11-05 Quarter: 2014-09-28
10-Q 2014-08-08 Quarter: 2014-06-29
10-K 2014-05-29 Annual: 2014-03-30
10-Q 2014-02-07 Quarter: 2013-12-29
10-Q 2013-11-08 Quarter: 2013-09-29
10-Q 2013-08-06 Quarter: 2013-06-30
10-K 2013-05-29 Annual: 2013-03-31
10-Q 2013-02-08 Quarter: 2012-12-30
10-Q 2012-11-08 Quarter: 2012-09-30
10-Q 2012-08-09 Quarter: 2012-07-01
10-K 2012-05-31 Annual: 2012-04-01
10-Q 2012-02-03 Quarter: 2011-12-25
10-Q 2011-11-02 Quarter: 2011-11-02
10-Q 2011-08-05 Quarter: 2011-08-05
10-K 2011-05-24 Annual: 2011-03-27
10-Q 2011-02-04 Quarter: 2010-12-26
10-Q 2010-11-03 Quarter: 2010-09-30
10-Q 2010-08-11 Quarter: 2010-06-27
10-K 2010-05-27 Annual: 2010-03-28
10-Q 2010-02-10 Quarter: 2009-12-27
8-K 2020-01-27 Earnings, Exhibits
8-K 2019-11-15 Officers, Exhibits
8-K 2019-10-30 Earnings, Exhibits
8-K 2019-10-01 Officers, Exhibits
8-K 2019-08-18 Officers, Exhibits
8-K 2019-07-22 Earnings, Exhibits
8-K 2019-07-18 Officers, Shareholder Vote, Exhibits
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-18 Shareholder Vote
8-K 2018-07-16 Earnings, Exhibits
8-K 2018-05-07 Earnings, Exhibits
8-K 2018-01-23 Earnings, Exhibits
TESS 2019-12-29
Part I. Financial Information
Item 1. Financial Statements.
Note 1. Description of Business and Basis of Presentation
Note 2. Recently Issued Accounting Pronouncements
Note 3. Goodwill
Note 4. Stock-Based Compensation
Note 5. Borrowings Under Revolving Credit Facility
Note 6. Earnings per Share
Note 7. Business Segments
Note 8. Leases
Note 9. Shares Withheld
Note 10. Concentration of Risk
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1.1 tess-20191229ex31114ea5c.htm
EX-31.2.1 tess-20191229ex31213abd3.htm
EX-32.1.1 tess-20191229ex3211711fb.htm
EX-32.2.1 tess-20191229ex32210c650.htm

Tessco Technologies Earnings 2019-12-29

TESS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
TGLS 281 580 399 416 140 17 53 500 34% 9.5 3%
CAMT 250 142 40 0 0 0 0 195 0%
TESS 161 230 125 587 116 2 6 162 20% 27.8 1%
CYBE 121 73 15 65 29 3 7 111 44% 16.4 4%
RADA 100 54 12 0 0 0 0 78 0%
VOXX 97 498 106 439 120 -46 -34 43 27% -1.3 -9%
PRCP 52 63 21 77 27 -7 -4 47 35% -11.7 -11%
CUI 25 79 40 98 30 -15 -12 22 31% -1.9 -18%
TAIT 18 14 1 8 4 1 2 14 46% 9.2 10%
AWSM 14 13 21 20 5 -31 -30 24 28% -0.8 -233%

10-Q 1 tess-20191229x10q.htm 10-Q tess_Current folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

For the quarterly period ended December 29, 2019

 

or

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

For the transition period from        to

 

 

Commission File Number: 001-33938

TESSCO Technologies Incorporated

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

52-0729657

(State or other jurisdiction of

incorporation or organization)

(I.R.S Employer

Identification No.)

 

 

 

 

11126 McCormick Road, Hunt Valley, Maryland

21031

(Address of principal executive offices)

(Zip Code)

 

(410) 229-1000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

TESS

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes       No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Smaller reporting company

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes       No

 

The number of shares of the registrant’s Common Stock, $0.01 par value per share, outstanding as of January 31, 2020, was 8,547,747.

 

 

 

 

TESSCO Technologies Incorporated

Index to Form 10-Q

 

 

 

 

 

2

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

TESSCO Technologies Incorporated

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

    

December 29,

    

March 31,

 

 

 

 

2019

 

2019

 

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

800

 

$

30,300

 

 

Trade accounts receivable

 

 

82,545,100

 

 

93,966,200

 

 

Product inventory, net

 

 

70,773,100

 

 

71,845,400

 

 

Prepaid expenses and other current assets

 

 

6,880,700

 

 

5,562,800

 

 

Total current assets

 

 

160,199,700

 

 

171,404,700

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

13,800,800

 

 

15,003,500

 

 

Goodwill

 

 

9,108,600

 

 

11,677,700

 

 

Intangible assets, net

 

 

9,145,000

 

 

5,097,800

 

 

Deferred tax assets

 

 

2,305,800

 

 

55,300

 

 

Lease asset - right of use

 

 

14,577,200

 

 

 —

 

 

Other long-term assets

 

 

2,479,400

 

 

3,256,800

 

 

Total assets

 

$

211,616,500

 

$

206,495,800

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

60,618,500

 

$

73,059,700

 

 

Payroll, benefits and taxes

 

 

5,385,300

 

 

5,929,500

 

 

Income and sales tax liabilities

 

 

272,600

 

 

749,000

 

 

Accrued expenses and other current liabilities

 

 

3,042,200

 

 

2,652,400

 

 

Revolving line of credit

 

 

29,356,800

 

 

14,378,100

 

 

Lease liability, current

 

 

2,553,000

 

 

 —

 

 

Total current liabilities

 

 

101,228,400

 

 

96,768,700

 

 

 

 

 

 

 

 

 

 

 

Lease liability

 

 

12,095,900

 

 

 —

 

 

Long-term liabilities

 

 

806,000

 

 

939,900

 

 

Total liabilities

 

 

114,130,300

 

 

97,708,600

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value per share, 500,000 shares authorized and no shares issued and outstanding

 

 

 —

 

 

 —

 

 

Common stock, $0.01 par value per share, 15,000,000 shares authorized, 14,320,019 shares issued and 8,543,200 shares outstanding as of December 29, 2019, and 14,190,027 shares issued and 8,468,529 shares outstanding as of March 31, 2019

 

 

101,100

 

 

99,800

 

 

Additional paid-in capital

 

 

64,854,700

 

 

62,666,400

 

 

Treasury stock, at cost, 5,776,819 shares as of December 29, 2019 and 5,721,498 shares as of March 31, 2019

 

 

(58,496,200)

 

 

(57,614,100)

 

 

Retained earnings

 

 

91,026,600

 

 

103,635,100

 

 

Total shareholders’ equity

 

 

97,486,200

 

 

108,787,200

 

 

Total liabilities and shareholders’ equity

 

$

211,616,500

 

$

206,495,800

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3

TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarters Ended

 

Nine Months Ended

 

 

    

December 29, 2019

    

December 30, 2018

 

December 29, 2019

    

December 30, 2018

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

139,578,200

 

$

152,294,500

 

$

412,118,400

 

$

461,850,000

 

Cost of goods sold

 

 

116,503,900

 

 

121,295,800

 

 

337,461,300

 

 

368,758,500

 

Gross profit

 

 

23,074,300

 

 

30,998,700

 

 

74,657,100

 

 

93,091,500

 

Selling, general and administrative expenses

 

 

26,479,100

 

 

27,494,800

 

 

80,320,800

 

 

85,933,400

 

Goodwill impairment

 

 

2,569,100

 

 

 —

 

 

2,569,100

 

 

 —

 

Restructuring charge

 

 

 —

 

 

 —

 

 

488,000

 

 

 —

 

(Loss) income from operations

 

 

(5,973,900)

 

 

3,503,900

 

 

(8,720,800)

 

 

7,158,100

 

Interest expense, net

 

 

367,900

 

 

247,900

 

 

911,700

 

 

667,100

 

(Loss) income before provision for (benefit from) income taxes

 

 

(6,341,800)

 

 

3,256,000

 

 

(9,632,500)

 

 

6,491,000

 

(Benefit from) provision for income taxes

 

 

(1,320,400)

 

 

551,400

 

 

(2,140,300)

 

 

1,437,200

 

Net (loss) income

 

$

(5,021,400)

 

$

2,704,600

 

$

(7,492,200)

 

$

5,053,800

 

Basic (loss) earnings per share

 

$

(0.59)

 

$

0.32

 

$

(0.88)

 

$

0.60

 

Diluted (loss) earnings per share

 

$

(0.59)

 

$

0.32

 

$

(0.88)

 

$

0.59

 

Basic weighted-average common shares outstanding

 

 

8,541,020

 

 

8,446,671

 

 

8,517,838

 

 

8,429,086

 

Effect of dilutive options and other equity instruments

 

 

 —

 

 

32,583

 

 

 —

 

 

130,982

 

Diluted weighted-average common shares outstanding

 

 

8,541,020

 

 

8,479,254

 

 

8,517,838

 

 

8,560,068

 

Cash dividends declared per common share

 

$

0.20

 

$

0.20

 

$

0.60

 

$

0.60

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4

TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Changes in Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Paid-in

 

Treasury

 

Retained

 

Shareholders’

 

 

Shares

 

Amount

 

Capital

 

Stock

 

Earnings

 

Equity

Balance at March 31, 2019

 

8,468,529

 

 

99,800

 

 

62,666,400

 

 

(57,614,100)

 

 

103,635,100

 

 

108,787,200

Proceeds from issuance of stock

 

9,250

 

 

100

 

 

143,100

 

 

 —

 

 

 —

 

 

143,200

Treasury stock purchases

 

(10,488)

 

 

 —

 

 

 —

 

 

(189,100)

 

 

 —

 

 

(189,100)

Non-cash stock compensation expense

 

41,256

 

 

400

 

 

338,500

 

 

 —

 

 

 —

 

 

338,900

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,702,600)

 

 

(1,702,600)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,492,800)

 

 

(2,492,800)

Balance at June 30, 2019

 

8,508,547

 

 

100,300

 

 

63,148,000

 

 

(57,803,200)

 

 

99,439,700

 

 

104,884,800

Proceeds from issuance of stock

 

19,236

 

 

200

 

 

283,600

 

 

 —

 

 

 —

 

 

283,800

Treasury stock purchases

 

(44,009)

 

 

 —

 

 

 —

 

 

(681,100)

 

 

 —

 

 

(681,100)

Non-cash stock compensation expense

 

 —

 

 

 —

 

 

391,800

 

 

 —

 

 

 —

 

 

391,800

Exercise of stock options

 

48,125

 

 

500

 

 

680,600

 

 

 —

 

 

 —

 

 

681,100

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,704,200)

 

 

(1,704,200)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

22,000

 

 

22,000

Balance at September 29, 2019

 

8,531,899

 

 

101,000

 

 

64,504,000

 

 

(58,484,300)

 

 

97,757,500

 

 

103,878,200

Proceeds from issuance of stock

 

9,570

 

 

100

 

 

138,000

 

 

 —

 

 

 —

 

 

138,100

Treasury stock purchases

 

(824)

 

 

 —

 

 

 —

 

 

(11,900)

 

 

 —

 

 

(11,900)

Non-cash stock compensation expense

 

2,530

 

 

 —

 

 

212,700

 

 

 —

 

 

 —

 

 

212,700

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,709,500)

 

 

(1,709,500)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,021,400)

 

 

(5,021,400)

Balance at December 29, 2019

 

8,543,175

 

$

101,100

 

$

64,854,700

 

$

(58,496,200)

 

$

91,026,600

 

$

97,486,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2018

 

8,396,537

 

 

99,000

 

 

60,611,900

 

 

(57,503,000)

 

 

104,843,700

 

 

108,051,600

Proceeds from issuance of stock

 

5,620

 

 

100

 

 

130,000

 

 

 —

 

 

 —

 

 

130,100

Treasury stock purchases

 

(6,332)

 

 

 —

 

 

 —

 

 

(111,100)

 

 

 —

 

 

(111,100)

Non-cash stock compensation expense

 

26,257

 

 

200

 

 

320,300

 

 

 —

 

 

 —

 

 

320,500

Cash dividends paid

 

 —

 

 

 

 

 

 —

 

 

 —

 

 

(1,684,200)

 

 

(1,684,200)

Net income

 

 —

 

 

 

 

 

 —

 

 

 —

 

 

1,158,400

 

 

1,158,400

Balance at July 1, 2018

 

8,422,082

 

 

99,300

 

 

61,062,200

 

 

(57,614,100)

 

 

104,317,900

 

 

107,865,300

Proceeds from issuance of stock

 

17,446

 

 

200

 

 

282,400

 

 

 —

 

 

 —

 

 

282,600

Non-cash stock compensation expense

 

 —

 

 

 —

 

 

384,800

 

 

 —

 

 

 —

 

 

384,800

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,687,000)

 

 

(1,687,000)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,190,800

 

 

1,190,800

Balance at September 30, 2018

 

8,439,528

 

 

99,500

 

 

61,729,400

 

 

(57,614,100)

 

 

103,821,700

 

 

108,036,500

Proceeds from issuance of stock

 

8,998

 

 

100

 

 

137,200

 

 

 —

 

 

 —

 

 

137,300

Non-cash stock compensation expense

 

 —

 

 

 —

 

 

274,100

 

 

 —

 

 

 —

 

 

274,100

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,690,600)

 

 

(1,690,600)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,704,600

 

 

2,704,600

Balance at December 30, 2018

 

8,448,526

 

$

99,600

 

$

62,140,700

 

$

(57,614,100)

 

$

104,835,700

 

$

109,461,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

5

TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

December 29, 2019

 

December 30, 2018

    

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

 

    

    

 

    

 

Net (loss) income

 

$

(7,492,200)

 

$

5,053,800

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,870,200

 

 

2,706,800

 

Goodwill impairment

 

 

2,569,100

 

 

 —

 

Non-cash stock-based compensation expense

 

 

943,400

 

 

979,400

 

Deferred income taxes and other

 

 

(2,250,500)

 

 

 —

 

Change in trade accounts receivable

 

 

11,421,100

 

 

(2,512,300)

 

Change in product inventory

 

 

1,072,300

 

 

(2,321,800)

 

Change in prepaid expenses and other current assets

 

 

(1,317,900)

 

 

(1,476,700)

 

Change in other assets and other liabilities

 

 

815,600

 

 

643,500

 

Change in trade accounts payable

 

 

(11,496,300)

 

 

524,600

 

Change in payroll, benefits and taxes

 

 

(544,200)

 

 

(1,296,400)

 

Change in income and sales tax liabilities

 

 

(476,400)

 

 

(1,038,100)

 

Change in accrued expenses and other current liabilities

 

 

887,000

 

 

1,991,600

 

Net cash (used in) provided by operating activities

 

 

(2,998,800)

 

 

3,254,400

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(1,094,300)

 

 

(2,643,900)

 

Purchases of internal use software

 

 

(5,737,400)

 

 

(1,642,400)

 

Net cash used in investing activities

 

 

(6,831,700)

 

 

(4,286,300)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Net borrowings from revolving line of credit

 

 

14,978,700

 

 

6,070,100

 

Payments on debt

 

 

(2,300)

 

 

(20,400)

 

Proceeds from issuance of common stock

 

 

142,400

 

 

137,300

 

Cash dividends paid

 

 

(5,116,300)

 

 

(5,061,800)

 

Purchases of treasury stock and repurchases of stock from employees

 

 

(201,500)

 

 

(111,100)

 

Net cash provided by financing activities

 

 

9,801,000

 

 

1,014,100

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(29,500)

 

 

(17,800)

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

30,300

 

 

19,400

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 

$

800

 

$

1,600

 

 

See accompanying notes to unaudited consolidated financial statements.

6

TESSCO Technologies Incorporated 

Notes to Unaudited Consolidated Financial Statements

 

Note 1. Description of Business and Basis of Presentation

 

TESSCO Technologies Incorporated, a Delaware corporation (TESSCO, we, or the Company), architects and delivers innovative product and value chain solutions to support wireless systems. The Company provides marketing and sales services, knowledge and supply chain management, product-solution delivery and control systems utilizing extensive internet and information technology. Approximately 97% of the Company’s sales are made to customers in the United States. The Company takes orders in several ways, including phone, fax, online and through electronic data interchange. Almost all of the Company’s sales are made in United States Dollars.

 

In management’s opinion, the accompanying interim Consolidated Financial Statements of the Company include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the Company’s financial position for the interim periods presented. These statements are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been omitted from these statements, as permitted under the applicable rules and regulations. The results of operations presented in the accompanying interim Consolidated Financial Statements are not necessarily representative of operations for an entire year. The information included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with SEC on June 11, 2019.

 

Certain amounts have been reclassified on the balance sheet to conform with current period presentation.

 

 

Note 2. Recently Issued Accounting Pronouncements

 

Recently issued accounting pronouncements not yet adopted:

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. This ASU is effective for periods beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements and will adopt the standard on the first day of the Company’s 2024 fiscal year.

 

Recently issued accounting pronouncements adopted:

 

Effective April 1, 2019, the Company adopted the FASB issued ASU No. 2016-02, Leases. This ASU requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The Company adopted this standard on the first day of the 2020 fiscal year, using a modified retrospective approach. This standard resulted in the Company recording a right-of-use asset and lease liability for all leases, but otherwise the standard did not have a material impact on the financial statements. Prior periods were not adjusted to reflect this change.

7

 

Effective April 1, 2019, the Company adopted the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The new standard changes the classification of certain cash payments and receipts within the cash flow statement. Specifically, payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment, excluding accrued interest, are now classified as financing activities. Previously, these payments were classified as operating expenses. Adoption of this standard did not have an impact on the Consolidated Financial Statements of the Company, included herein.

 

Effective September 30, 2019, the Company adopted the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The early adoption of this standard resulted in the Company capitalizing certain implementation costs related to cloud computing arrangements that are service contracts, during the third quarter.

 

 

Note 3. Goodwill

 

During the third quarter of fiscal 2020, the Company recorded $2.6 million of non-cash goodwill impairment. Due to the lower than expected results through the first nine months of fiscal 2020, the Company performed an interim quantitative goodwill impairment assessment, which included an analysis of new information related to macroeconomic, industry and company specific events and trends. During this analysis, the Company determined that potential impairment indicators existed related to the retail segment based on the continued decline in sales and profitability in the retail segment, including the transition of the Company’s largest retail customer during the first quarter of fiscal 2020. The Company conducted a quantitative impairment analysis using various valuation techniques, with the primary technique being a discounted cash flow or income approach, under which the Company estimated the present value of the report unit’s future cash flows.

 

Note 4. Stock-Based Compensation

 

The Company’s selling, general and administrative expenses for the fiscal quarter and nine months ended December 29, 2019 includes $212,700 and $943,400, respectively, of non-cash stock-based compensation expense. The Company’s selling, general and administrative expenses for the fiscal quarter and nine months ended December 30, 2018 includes $274,100 and $979,400, respectively, of non-cash stock-based compensation expense. Non-cash stock-based compensation expense is primarily related to our Performance Stock Units (PSUs), Restricted Stock Units (RSUs) and Stock Options, granted or outstanding under the Company’s Third Amended and Restated Stock and Incentive Plan (the “1994 Plan”) and 2019 Stock and Incentive Plan (the “2019 Plan” and together with the 1994 Plan, the “Plans”), which was approved at the Annual Meeting of Shareholders held on July 25, 2019. No additional awards may be granted under the 1994 Plan, although awards outstanding under the 1994 Plan remain outstanding and governed by its terms.

 

8

Performance Stock Units: The following table summarizes the activity under the Company’s PSU program under the Plans, for the first nine months of fiscal 2020:

 

 

 

 

 

 

 

 

 

 

    

Nine Months

    

Weighted

 

 

 

 

Ended 

 

Average Fair

 

 

 

 

December 29,

 

Value at Grant

 

 

 

 

2019

 

Date (per unit)

 

 

Unvested shares available for issue under outstanding PSUs, beginning of period

 

98,306

 

$

14.55

 

 

PSUs Granted

 

51,616

 

 

15.93

 

 

PSUs Vested

 

(29,036)

 

 

14.09

 

 

PSUs Forfeited/Cancelled

 

(40,719)

 

 

15.69

 

 

Unvested shares available for issue under outstanding PSUs, end of period

 

80,167

 

$

15.02

 

 

 

During the first quarter of fiscal 2020, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the grant of PSUs to select key employees, providing them with the opportunity to earn up to 45,500 shares of the Company’s common stock in the aggregate, depending upon whether certain earnings per share targets, and individual performance metrics, are satisfied, for fiscal year 2020. These not-yet-earned PSUs have only one measurement year (fiscal 2020), and assuming the performance metrics are met to a sufficient extent, the shares earned at the end of fiscal 2020 on the basis of that performance will vest in four equal installments beginning on or about May 15, 2020 and continuing on the same date in calendar 2021, 2022 and 2023, provided that the respective employee remains employed by the Company on each such date. Pursuant to the typical PSU award agreement, however, performance metrics are deemed met upon the occurrence of a change in control, and shares earned are issued earlier upon the occurrence of a change in control, or death or disability of the employee, or upon termination of the employee’s employment without cause or by the employee for good reason, as those terms are defined in the applicable PSU award agreement. In connection with his hiring as President and Chief Executive Officer on August 20, 2019, the Compensation Committee, with concurrence of the full Board of Directors, granted an additional PSU to Mr. Mukerjee, providing him with the opportunity to earn up to 6,116 shares of the Company’s common stock. This PSU was granted on the same terms as the PSUs granted in May 2019, except that this PSU was granted under the 2019 Plan and any shares earned pursuant to it on the basis of fiscal 2020 performance will vest in four equal installments beginning on the first anniversary of the commencement of the employment of Mr. Mukerjee and continue in calendar 2021, 2022 and 2023 on the same date as the other PSUs vest, provided that Mr. Mukerjee remains employed by the Company on each such date.

 

The PSUs cancelled during fiscal 2020 primarily related to the fiscal 2019 grant of PSUs, which also had a one-year measurement period (fiscal 2019). The PSUs were cancelled because the applicable fiscal 2019 performance targets were not fully attained. Per the provisions of the 1994 Plan, the shares related to these forfeited and cancelled PSUs were added back to the 1994 Plan and became available for future issuance under the 1994 Plan (or its successor 2019 plan).

 

If all PSUs granted thus far in fiscal 2020 are assumed to be earned on account of the applicable performance metrics being fully met, or otherwise in accordance with terms of the applicable award agreement, total unrecognized compensation costs on these PSUs plus all earned but unvested PSUs would be approximately $0.8 million as of December 29, 2019, and would be expensed through fiscal 2023. To the extent the maximum number of PSUs granted in fiscal 2020 are not earned, stock-based compensation related to these awards will differ from this amount.

 

Restricted Stock Units: The Company has made annual RSU awards under the 1994 Plan to its non-employee directors over recent years. On May 10, 2019, the Compensation Committee approved the grant of an aggregate of 21,000 RSUs, ratably to the six non-employee directors, including the Chairman of the Board of the Company. These RSU awards provide for the issuance of shares of the Company’s common stock in four equal

9

installments beginning on May 10, 2020 and continuing on the same date in 2021, 2022 and 2023, provided that the director remains associated with the Company on each such date (or meets other criteria as prescribed in the applicable award agreement).

 

On August 8, 2017, the Compensation Committee, with the concurrence of the full Board of Directors, approved the grant of an aggregate of up to 56,000 RSUs to several senior executives. The number of shares earned by a recipient is determined by multiplying the number of RSUs covered by the award by a fraction, the numerator of which is the cumulative amount of dividends (regular, ordinary and special) declared and paid, per share, on the Common Stock, over an earnings period of up to four years, and the denominator of which is $3.20. Subject to earlier issuance upon the occurrence of certain events (as described in the applicable award agreement), any earned shares are issued and distributed to the recipient upon the fourth anniversary of the award date. As of December 29, 2019, 15,000 of these 56,000 RSUs have been canceled due to employee departures, leaving 41,000 of the 56,000 RSUs outstanding. An additional 2,000 RSU’s with similar terms (but with a shorter earnings period) were awarded in fiscal 2019, and in connection with his hiring as our new President and Chief Executive Officer, the Company issued an additional RSU grant to Mr. Mukerjee under the 2019 Plan for 19,000 shares and with similar terms (a four-year earning period and a denominator of $3.20).  As a result, an aggregate of 62,000 dividend-based RSUs currently remain outstanding.

 

As of December 29, 2019, there was approximately $0.9 million of total unrecognized compensation cost related to all outstanding RSUs, assuming all shares are earned. Unrecognized compensation costs are expected to be recognized ratably over a weighted average period of approximately three years.

 

PSUs and RSUs are expensed based on the grant date fair value, calculated as the closing price of TESSCO common stock as reported by Nasdaq on the date of grant minus the present value of dividends expected to be paid on the common stock before the award vests, because dividends or dividend-equivalent amounts do not accrue and are not paid on unvested PSUs and RSUs.

 

The Company accounts for forfeitures as they occur rather than estimate expected forfeitures. To the extent that forfeitures occur, stock-based compensation related to the restricted awards may be different from the Company’s expectations.

 

Stock Options: As summarized below, in the first nine months of fiscal 2020, stock options for an aggregate of 385,000 shares of common stock, including an option for 250,000 shares issued to the Company’s new President and Chief Executive Officer, were granted, under the Plans. These stock options have exercise prices equal to the market price of the Company’s stock on the grant date, and except for the option granted to Mr. Mukerjee (which vests and becomes exercisable for 80,308 shares on November 30, 2020 and continues to vest on the last day of each consecutive month following, at a rate of approximately 5,142 shares monthly, until becoming fully exercisable on August 31, 2023), the terms thereof provide for 25% vesting after one year and then 1/36 per month over the following three years, subject, however, to acceleration or termination upon the occurrence of certain events, as described in the applicable award agreement. The grant date value of the Company’s stock options is determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant.

 

The value of each option at the date of grant is amortized as compensation expense over the service period. This occurs without regard to subsequent changes in stock price, volatility, or interest rates over time, provided the option remains outstanding.

 

10

The following tables summarize the pertinent information for outstanding options.

 

 

 

 

 

 

 

 

    

Nine Months

    

Weighted

 

 

 

Ended 

 

Average Fair

 

 

 

December 29,

 

Value at Grant

 

 

 

2019

 

Date (per unit)

 

Outstanding, beginning of period

 

591,500

 

$

2.30

 

Options Granted

 

385,000

 

 

2.50

 

Options Forfeited/Cancelled

 

(71,792)

 

 

3.10

 

Options Exercised

 

(48,125)

 

 

2.25

 

Outstanding, end of period

 

856,583

 

 

2.33

 

Vested and exercisable, end of period

 

366,458

 

$

2.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 29, 2019

Grant Fiscal Year

 

Options Granted

 

 

Option Exercise Price

 

Options Outstanding

 

Options Exercisable

2020

 

385,000

 

$

13.80

 

358,000

 

 -

2019

 

66,500

 

$

16.31

 

44,000

 

13,749

2018

 

230,000

 

$

15.12

 

114,583

 

70,001

2017

 

410,000

 

$

12.57

 

300,000

 

242,708

2016

 

100,000

 

$

22.42

 

40,000

 

40,000

Total

 

 

 

 

 

 

856,583

 

366,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant Fiscal Year

 

Expected Stock Price Volatility

 

Risk-Free Interest Rate

 

Expected Dividend Yield

 

Average Expected Term

 

Resulting Black Scholes Value

2020

 

35.76

%

 

2.02

%

 

6.07

%

 

4.0

 

$

2.50

2019

 

35.59

%

 

3.11

%

 

4.99

%

 

4.0

 

$

3.38

2018

 

32.63

%

 

1.96

%

 

5.34

%

 

4.0

 

$

2.57

 

As of December 29, 2019, there was approximately $1.0 million of total unrecognized compensation costs related to these options. These unrecognized compensation costs are expected to be recognized ratably over a period of approximately three years. 

 

 

Note 5. Borrowings Under Revolving Credit Facility

 

On October 19, 2017, the Company and its primary operating subsidiaries, as co-borrowers, and SunTrust Bank, as Administrative Agent and Lender, and Wells Fargo Bank, National Association, as a Lender, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the terms of a previously established secured Revolving Credit Facility with the same lenders, and which resulted in, among other modifications, an increase in the Company’s borrowing limit to up to $75 million, from the previous borrowing limit of up to $35 million. Capitalized terms used but not otherwise defined in this and the following three paragraphs have the meanings ascribed to each in the Amended and Restated Credit Agreement.

 

In addition to increasing the Company’s borrowing limit, and among other modifications, the Amended and Restated Credit Agreement extended the maturity date of the secured Revolving Credit Facility to October 19, 2021. The Amended and Restated Credit Agreement also set forth financial covenants, including a fixed charge coverage ratio to be maintained at any time during which the borrowing availability, as determined in accordance with the Amended and Restated Credit Agreement, falls below $10 million, as well as terms that could limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. The

11

Amended and Restated Credit Agreement provides for a $5.0 million sublimit for the issuance of standby letters of credit, a $12.5 million sublimit for swingline loans and an accordion feature which, subject to certain conditions, could increase the aggregate amount of the commitments to up to $125 million, with the optional commitments being provided by existing Lenders or new lenders reasonably acceptable to the Administrative Agent. No Lender is obligated to increase its commitment. Availability is determined in accordance with a Borrowing Base, which has been expanded to include not only Eligible Receivables but also Eligible Inventory and is generally: (A) the sum of (i) 85% of Eligible Receivables; (ii) the Inventory Formula Amount for all Eligible Inventory which is aged less than 181 days; and (iii) the lesser of (x) $4 million and (y) the Inventory Formula Amount for all Eligible Inventory which is aged at least 181 days; minus (B) Reserves.

Borrowings under the Amended and Restated Credit Agreement initially accrue interest from the applicable borrowing date at an Applicable Rate equal to the Eurodollar Rate plus the Applicable Margin. The Eurodollar Rate is the rate per annum obtained by dividing (i) LIBOR by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage. When the Applicable Rate is the Eurodollar Rate plus the Applicable Margin, the Applicable Margin is 1.50% if Average Availability is greater than or equal to $15 million, and 1.75% otherwise.  On December 29, 2019, the interest rate applicable to borrowings under the secured Revolving Credit Facility was 3.20%. Under certain circumstances, the Applicable Rate is subject to change at the Lenders’ option from the Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin.  Following an Event of Default, in addition to changing the Applicable Rate to the Base Rate plus the Applicable Margin, the Lenders’ may at their option set the Applicable Margin at 0.50% if the Base Rate applies or 1.75% if the Eurodollar Rate applies, and increase the Applicable Rate by an additional 200 basis points. The Applicable Rate adjusts on the first Business Day of each calendar month.  The Company is required to pay a monthly Commitment Fee on the average daily unused portion of the secured Revolving Credit Facility provided for pursuant to the Amended and Restated Credit Agreement, at a per annum rate equal to 0.25%.

In connection with the entering into of the Amended and Restated Credit Agreement, the Company, the other Company affiliate borrowers under the Amended and Restated Credit Agreement and other subsidiaries of the Company, referred to collectively as the Loan Parties, executed and delivered to SunTrust Bank, as Administrative Agent, a Reaffirmation Agreement, pursuant to which the obligations of the Loan Parties under a Guaranty and Security Agreement previously delivered by them in connection with the secured Revolving Credit Facility as previously existing (including the previously existing guaranty by the Loan Parties not otherwise Borrowers and the previously existing grant by the Company and the other Loan Parties of a continuing first priority security interest in inventory, accounts receivable and deposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and all proceeds) were ratified and confirmed as respects the Obligations arising from time to time under the secured Revolving Credit Facility provided for under the Amended and Restated Credit Agreement, and as respects certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products. 

Borrowings may be used for working capital and other general corporate purposes, as further provided in, and subject to the applicable terms of, the Amended and Restated Credit Agreement. As of December 29, 2019, borrowings under the secured Revolving Credit Facility totaled $29.4 million and, therefore, the Company had $45.6 million available for borrowing as of December 29, 2019, subject to the Borrowing Base limitation and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the covenants referenced above. The line of credit has a lockbox arrangement associated with it and therefore the outstanding balance is classified as a current liability on our balance sheet.  As of March 31, 2019, borrowings under the secured Revolving Credit Facility totaled $14.4 million and, therefore, the Company had $60.6 million available on its revolving line of credit facility as of March 31, 2019, again subject to the Borrowing

12

Base limitation and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the covenants referenced above.

 

Note 6. Earnings Per Share

 

The Company presents the computation of earnings per share (“EPS”) on a basic and diluted basis. Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the reported period. Diluted EPS is computed similarly to basic EPS, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential additional common shares that were dilutive had been issued. Common shares are excluded from the calculation if they are determined to be anti-dilutive. Diluted EPS was equal to basic EPS for the fiscal quarter ended and nine months ended December 29, 2019 because the Company operated at a loss. The number of diluted weighted-average common shares would have been 8,595,521 for the fiscal quarter ended December 29, 2019, and 8,651,341 for nine months ended December 29, 2019, respectively, if the Company was at a positive earning position. At December 30, 2018, stock options with respect to 591,500 shares of common stock were outstanding, of which 541,500 were anti-dilutive. There were no anti-dilutive PSUs or RSUs outstanding as of December 29, 2019 or December 30, 2018, respectively.

 

 

Note 7. Business Segments

 

The Company evaluates its business within two segments: commercial and retail. The commercial segment consists of the following customer markets: (1) public carriers, that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which results from the consolidation of our previously identified value-added resellers, government channels and private system operator markets, and reflects implementation over the 2019 fiscal year of an enhanced go-to-market strategy. This go-to-market strategy and the corresponding consolidation of these customer markets is designed to increase sales opportunities across the consolidated markets, as well as to provide better coverage to customers and to better align territories with supplier partners.

 

The retail segment consists of the retail market which includes retailers, independent dealer agents and carriers.

 

To provide investors with better visibility, the Company also discloses revenue and gross profit by its four product categories:

 

·

Base Station Infrastructure - Base station infrastructure products are used to build, repair and upgrade wireless telecommunications systems. Products include base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, miscellaneous hardware, and mobile antennas. Base station infrastructure service offerings include connector installation, custom jumper assembly, site kitting and logistics integration.

 

·

Network Systems - Network systems products are used to build and upgrade computing and internet networks.  Products include fixed and mobile broadband equipment, distributed antenna systems (DAS), wireless networking, filtering systems, two-way radios and security and surveillance products.  This product category also includes training classes, technical support and engineering design services. 

 

·

Installation, Test and Maintenance - Installation, test and maintenance products are used to install, tune, maintain and repair wireless communications equipment. Products include sophisticated analysis equipment and various frequency, voltage- and power-measuring devices, as well as an assortment of

13

tools, hardware, GPS, safety and replacement and component parts and supplies required by service technicians.  

 

·

Mobile Device Accessories - Mobile device accessories include cellular phone and data device accessories such as replacement batteries, cases, speakers, mobile amplifiers, power supplies, headsets, mounts, car antennas, music accessories and data and memory cards. Retail merchandising displays, promotional programs, customized order fulfillment services and affinity-marketing programs, including private label internet sites, complement our mobile devices and accessory product offering.

 

The Company evaluates revenue, gross profit, and income before provision for income taxes at the segment level.  Certain cost of sales and other applicable expenses have been allocated to each segment based on a percentage of revenues and/or gross profit, where appropriate.

Segment activity for the third quarter and first nine months of fiscal years 2020 and 2019 are as follows (in thousands):