TESSCO TECHNOLOGIES INCORPORATED This commentary should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the fiscal year ended
Business Overview and Environment
On
We now operate as two reportable segments: Carrier and Commercial, for which we provide certain information. Carrier is generally comprised of customers responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers and Commercial includes value-added resellers, the government channel and private system operator markets.
We offer 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. Sales of traditional base station infrastructure products, such as base station radios, cable and transmission lines, and antennas are in part dependent on capital spending in the wireless communications industry. Network systems products are used to build and upgrade computing and internet networks. In this category, we have also been growing our offering of wireless broadband, network equipment, security and surveillance products, which are not as dependent on the overall capital spending of the industry. Installation, test, and maintenance products are used to install, tune, and maintain wireless communications equipment. This category is made up of sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, replacement parts and components as well as an assortment of tools, hardware and supplies required by service technicians. Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes products typically used by business entities or governments.
The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors. In addition, many manufacturers sell direct to end-user customers. Barriers to entry for distributors are relatively low, and the risk of new competitors entering the market is high. Consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base. In addition, the agreements or arrangements with our customers or suppliers looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months or otherwise short notice. Our ability to maintain these relationships is subject to competitive pressures and challenges and depends upon a number of factors that often differ for each relationship. We believe, however, that our strength in service, the breadth and depth of our product offerings, our information technology system, our large customer base, and our purchasing relationships with approximately 300 manufacturers provide us with a significant competitive advantage over new entrants to the market.
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Results of Continuing Operations
First quarter of Fiscal Year 2023 Compared with First quarter of Fiscal Year 2022
Total Revenues. Revenues for the first quarter of fiscal 2023 increased 6.9% compared with the first quarter of fiscal 2022. Revenues in our Commercial segment increased 10.5%, and revenue in our Carrier segment increased 2.3%.
This increase in the Carrier segment was primarily due to increased customer pricing and gaining additional market share. The increase in Commercial segment revenues was primarily attributable to gaining additional market share, a more favorable product mix, and increased customer pricing.
Cost of Goods Sold. Cost of goods sold for the first quarter of fiscal 2023 increased 5.3% compared with the first quarter of fiscal 2022. Cost of goods sold in our Commercial segment increased by 9.9% and in our Carrier segment increased by 0.2%. The increase in cost of goods sold in the Commercial segment was largely driven by changes in revenues, as discussed above, while the increase in the Carrier segment was primarily attributable to a more favorable customer mix.
Total Gross Profit. Gross profit for the first quarter of fiscal 2023 increased by 13.6% compared to the first quarter of fiscal 2022. This increase was primarily due to increased revenues, a more favorable customer and product mix, and increased freight charged to customers. Overall gross profit margin increased from 18.8% in the first quarter of fiscal 2022 to 19.9% in the first quarter of fiscal 2023. Gross profit margin in our Carrier segment increased to 13.3% from 11.6% in the same quarter last year. Gross profit margin in our Commercial segment increased to 24.7% in the first quarter of fiscal 2023 from 24.4% in the same quarter last year. The gross margin improvement in the Carrier segment is primarily related to changes in customer and product mix. The gross margin increase in the Commercial segment is primarily attributable to product and customer mix, including higher sales of our higher margin Ventev® products. Gross margins in both segments were positively impacted by higher freight charged to customers in response to and to partially offset increased freight costs incurred, which is included in selling, general, and administrative expenses.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased by 4.5% or
The increase in our selling, general and administrative expenses was primarily
due to an increase of
Interest, Net. Net interest expense increased from
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the first quarter of fiscal 2023 as compared to the prior year same quarter. In
addition, capitalized interest increased from
Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate
increased from 1.8% in the first quarter of fiscal 2022 to 2.0% in the first
quarter of fiscal 2023. Net loss of
Discontinued Operations. Net income from discontinued operations was
Liquidity and Capital Resources
The following table summarizes our cash flows provided by or used in operating,
investing and financing activities for the three months ended
Three Months Ended
June 26, 2022 June 27, 2021
Cash flow provided by (used in) operating
activities $ (1,204,500) $ (5,832,300)
Cash flow provided by (used in) investing
activities (2,044,700) (2,173,900)
Cash flow provided by (used in) financing
activities 4,501,100 9,103,700
Net increase (decrease) in cash and cash
equivalents $ 1,251,900 $ 1,097,500 Net cash used in operating activities was
Net cash used in investing activities was
Net cash provided by financing activities was
On
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revolving credit facility of up to
We believe that our existing cash, payments from customers and availability
under the secured Revolving Credit Facility will be sufficient to support our
operations for at least the next twelve months. To minimize interest expense,
our policy is to apply excess available cash to reduce the balance outstanding
from time to time on our secured Revolving Credit Facility. Our increased focus
over the past several years on business opportunities for sales to our Carrier
customers led to the recent expansion of our borrowing limits, as now reflected
in the secured Revolving Credit Facility, and has at times resulted in increased
borrowings and dependence on that facility. If we were to undertake an
acquisition or other major capital purchases that require funds in excess of
existing sources of liquidity, we would look to sources of funding from
additional credit facilities, debt and/or equity issuances. As of
On
In addition, our liquidity could be negatively impacted by decreasing revenues and profits resulting from a decrease in demand for our products or a reduction in capital expenditures by our customers, or by the weakened financial conditions of our customers or suppliers, in each case as a result of a downturn in the global economy, among other factors.
Recent Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements is contained in Note 2 to our unaudited interim Consolidated Financial Statements included as part of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based on our unaudited interim Consolidated Financial Statements, which have
been prepared in accordance with accounting principles generally accepted in
For a detailed discussion on our critical accounting policies, please refer to
our Annual Report on Form 10-K for the fiscal year ended
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Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements. These
forward-looking statements may generally be identified by the use of the words
"may," "will," "expects," "anticipates," "believes," "estimates," "intends,"
"projects," "plans," "should," "would," "could," and similar expressions, but
the absence of these words or phrases does not necessarily mean that a statement
is not forward looking. Forward looking statements involve a number of known and
unknown risks and uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Our actual results may differ materially from those
described in or contemplated by any such forward-looking statement for a variety
of reasons, including those risks identified in our most recent Annual Report on
Form 10-K, this Quarterly Report on Form 10-Q, and other periodic reports filed
with the
We are not able to identify or control all circumstances that could occur in the future that may materially and adversely affect our business and operating results. Without limiting the risks that we describe in our periodic reports and elsewhere, among the risks that could lead to a materially adverse impact on our business or operating results are the following: the impact and results of any new or continued activism activities by activist investors; termination or non-renewal of limited duration agreements or arrangements with our suppliers, which are typically terminable by either party upon several months or otherwise relatively short notice; loss of significant customers, suppliers or other relationships, or reduction of customer business or product availability; loss of customers or suppliers either directly or indirectly as a result of consolidation among large wireless service carriers and others within the wireless communications industry; deterioration in the strength of our customers' or suppliers' business; negative or adverse economic conditions, including those adversely affecting consumer confidence or consumer or business spending or otherwise adversely impacting our suppliers or customers, including their access to capital or liquidity, or our customers' demand for, or ability to fund or pay for, the purchase of our products and services; our dependence on a relatively small number of suppliers, which could hamper our ability to maintain appropriate inventory levels and meet customer demand; changes in customer and product mix that affect gross margin; effect of "conflict minerals" regulations on the supply and cost of certain of our products; failure of our information technology system or distribution system; our inability to maintain or upgrade our technology or telecommunication systems without undue cost, incident or delay; system security or data protection breaches and exposure to cyber-attacks, and the cost associated with ongoing efforts to maintain cyber-security measures and to meet applicable compliance standards; damage or destruction of our distribution or other facilities; prolonged or otherwise unusual quality or performance control problems; technology changes in the wireless communications industry or technological failures, which could lead to significant inventory obsolescence or devaluation and/or our inability to offer key products that our customers demand; third-party freight carrier interruption; increased competition from competitors, including manufacturers or national and regional distributors of the products we sell and the absence of significant barriers to entry which could result in pricing and other pressures on profitability and market share; our relative bargaining power and inability to negotiate favorable terms with our suppliers and customers; our inability to access capital and obtain or retain financing as and when needed; transitional and other risks associated with acquisitions of companies that we may undertake in an effort to expand our business; claims against us for breach of the intellectual property rights of third parties; product liability claims; our inability to protect certain intellectual property, including systems and technologies on which we rely; our inability to hire or retain for
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any reason our key professionals, management and staff; health epidemics or pandemics or other outbreaks or events, or national or world events or disasters beyond our control; changes in political and regulatory conditions, including tax and trade policies; and the possibility that, for unforeseen or other reasons, we may be delayed in entering into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in realizing or fail to realize anticipated revenues or anticipated savings.
Available Information
Our internet website address is: www.tessco.com. We make available free of
charge through our website, our Annual Report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as
reasonably practicable after such documents are electronically filed with, or
furnished to, the
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