Tessco 10Q 2022 Q3 Quarterly report

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 26, 2021 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 February 1, 2022, was 8,983,566.

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TESSCO Technologies Incorporated

Index to Form 10-Q

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

TESSCO Technologies Incorporated

Unaudited Consolidated Balance Sheets


	December 26,		March 28,
	2021		2021

ASSETS
Current assets:
Cash and cash equivalents	$	1,122,200	$	1,110,000
Trade accounts receivable, net		68,386,900		70,045,700
Product inventory, net		51,521,600		53,060,000
Income taxes receivable		7,369,900		10,432,500
Prepaid expenses and other current assets		3,534,800		3,980,900
Current portion of assets held for sale		—		1,196,900
Total current assets		131,935,400		139,826,000

Property and equipment, net		11,679,200		12,571,600
Intangible assets, net		27,466,900		19,136,500
Lease asset - right of use		9,278,200		11,285,800
Other long-term assets		7,962,200		6,258,000
Total assets	$	188,321,900	$	189,077,900

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	55,550,400	$	59,415,600
Payroll, benefits and taxes		5,081,500		6,279,800
Income and sales tax liabilities		692,000		803,900
Accrued expenses and other current liabilities		1,462,200		2,912,300
Lease liability, current		2,548,400		2,573,500
Total current liabilities		65,334,500		71,985,100

Deferred tax liabilities, net		26,500		26,500
Revolving line of credit		38,271,500		30,583,200
Non-current lease liability		7,185,500		8,923,500
Other non-current liabilities		761,900		809,400
Total liabilities		111,579,900		112,327,700

Shareholders’ equity:
Preferred stock, $0.01 par value per share, 500,000 shares authorized and 0 shares issued and outstanding		—		—
Common stock, $0.01 par value per share, 15,000,000 shares authorized, 8,982,132 shares issued and 8,962,932 shares outstanding as of December 26, 2021, and 8,844,083 shares issued and 8,833,833 shares outstanding as of March 28, 2021		105,600		104,200
Additional paid-in capital		68,369,700		67,227,700
Treasury stock, at cost, 19,200 shares as of December 26, 2021 and 10,250 shares as of March 28, 2021		(129,200)		(62,800)
Retained earnings		8,395,900		9,481,100
Total shareholders’ equity		76,742,000		76,750,200
Total liabilities and shareholders’ equity	$	188,321,900	$	189,077,900

See accompanying notes to unaudited consolidated financial statements.

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TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Income (Loss)


	Three Months Ended				Nine Months Ended
	December 26, 2021		December 27, 2020		December 26, 2021		December 27, 2020

Revenues	$	102,462,400	$	99,237,600	$	315,954,700	$	284,607,600
Cost of goods sold		82,841,600		81,921,900		256,852,000		233,718,000
Gross profit		19,620,800		17,315,700		59,102,700		50,889,600
Selling, general and administrative expenses		19,403,800		23,606,800		62,038,600		65,927,100
Operating income (loss)		217,000		(6,291,100)		(2,935,900)		(15,037,500)
Interest expense, net		131,000		151,200		503,400		367,800
Income (loss) from continuing operations before income taxes		86,000		(6,442,300)		(3,439,300)		(15,405,300)
Provision for (benefit from) income taxes		(1,129,000)		(740,400)		(1,166,200)		(1,886,600)
Net income (loss) from continuing operations		1,215,000		(5,701,900)		(2,273,100)		(13,518,700)
Income (loss) from discontinued operations, net of taxes		243,800		4,787,500		1,187,900		7,706,000
Net income (loss)	$	1,458,800	$	(914,400)	$	(1,085,200)	$	(5,812,700)
Basic (loss) income per share
Continuing operations	$	0.14	$	(0.66)	$	(0.26)	$	(1.56)
Discontinued operations	$	0.03	$	0.55	$	0.13	$	0.89
Consolidated operations	$	0.16	$	(0.11)	$	(0.12)	$	(0.67)
Diluted (loss) income per share
Continuing operations	$	0.14	$	(0.66)	$	(0.26)	$	(1.56)
Discontinued operations	$	0.03	$	0.55	$	0.13	$	0.89
Consolidated operations	$	0.16	$	(0.11)	$	(0.12)	$	(0.67)
Basic weighted-average common shares outstanding		8,957,502		8,699,937		8,910,857		8,658,205
Effect of dilutive options and other equity instruments		39,335		—		—		—
Diluted weighted-average common shares outstanding		8,996,837		8,699,937		8,910,857		8,658,205

See accompanying notes to unaudited consolidated financial statements.

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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 28, 2021	8,833,833		104,200		67,227,700		(62,800)		9,481,100		76,750,200
Issuance of common stock for 401k match	13,782		100		102,700		—		—		102,800
Treasury stock purchases	(3,960)		—		—		(28,900)		—		(28,900)
Non-cash stock compensation expense	39,182		500		254,400		—		—		254,900
Exercise of stock options	1,754		—		10,900		(13,300)		—		(2,400)
Net loss	—		—		—		—		(1,717,300)		(1,717,300)
Balance at June 27, 2021	8,884,591		104,800		67,595,700		(105,000)		7,763,800		75,359,300
Issuance of common stock for 401k match	16,419		200		110,400		—		—		110,600
Treasury stock purchases	(4,244)		—		—		(24,200)		—		(24,200)
Non-cash stock compensation expense	29,959		300		367,800		—		—		368,100
Net loss	—		—		—		—		(826,700)		(826,700)
Balance at September 26, 2021	8,926,725		105,300		68,073,900		(129,200)		6,937,100		74,987,100
Issuance of common stock for 401k match	20,554		200		113,200		—		—		113,400
Proceeds from issuance of stock	15,653		100		80,900		—		—		81,000
Non-cash stock compensation expense	—		—		101,700		—		—		101,700
Net income	—		—		—		—		1,458,800		1,458,800
Balance at December 26, 2021	8,962,932		105,600		68,369,700		(129,200)		8,395,900		76,742,000

Balance at March 29, 2020	8,577,549		101,400		65,318,500		(58,496,200)		76,779,000		83,702,700
Issuance of common stock for 401k match	23,676		200		132,500		—		—		132,700
Treasury stock purchases	(12,781)		—		—		(58,800)		—		(58,800)
Non-cash stock compensation expense	48,685		600		311,300		—		—		311,900
Net loss	—				—		—		(4,631,400)		(4,631,400)
Balance at June 28, 2020	8,637,129		102,200		65,762,300		(58,555,000)		72,147,600		79,457,100
Issuance of common stock for 401k match	24,552		200		117,400		—		—		117,600
Proceeds from issuance of stock	23,240		200		107,100						107,300
Treasury stock purchases	(2,250)		—		—		(14,100)		—		(14,100)
Non-cash stock compensation expense	7,500		100		316,600		—		—		316,700
Retirement of treasury stock	—		—		—		58,555,000		(58,555,000)		—
Net loss	—		—		—		—		(266,900)		(266,900)
Balance at September 27, 2020	8,690,171		102,700		66,303,400		(14,100)		13,325,700		79,717,700
Issuance of common stock for 401k match	23,081		200		131,600		—		—		131,800
Treasury stock purchases	(8,000)		—		—		(48,700)		—		(48,700)
Non-cash stock compensation expense	35,418		400		330,600		—		—		331,000
Net loss	—		—		—		—		(914,400)		(914,400)
Balance at December 27, 2020	8,740,670		103,300		66,765,600		(62,800)		12,411,300		79,217,400

See accompanying notes to unaudited consolidated financial statements.

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TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Cash Flows


	Nine Months Ended
	December 26, 2021		December 27, 2020

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,085,200)	$	(5,812,700)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		1,878,400		3,135,100
Gain on sale of discontinued operations		—		(3,020,800)
Non-cash stock-based compensation expense		724,700		959,600
Deferred income taxes and other		—		2,274,400
Change in trade accounts receivable		1,658,800		4,865,200
Change in product inventory		2,735,300		8,390,900
Change in prepaid expenses and other current assets		446,100		(615,400)
Change in income taxes receivable		3,062,600		(2,731,900)
Change in other assets and other liabilities		(887,200)		(2,649,400)
Change in trade accounts payable		(6,057,800)		(7,916,100)
Change in payroll, benefits and taxes		(1,198,300)		3,318,800
Change in income and sales tax liabilities		(111,900)		159,600
Change in accrued expenses and other current liabilities		(867,900)		(745,300)
Net cash provided by (used in) operating activities		297,600		(388,000)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(325,000)		(489,900)
Proceeds from sale of discontinued operations		—		9,201,500
Purchases of internal-use software		(7,663,300)		(8,563,400)
Net cash provided by (used in) investing activities		(7,988,300)		148,200

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) from revolving line of credit short term		—		437,500
Borrowings from revolving line of credit long term		204,515,300		—
Repayments to revolving line of credit long term		(196,827,000)		—
Proceeds from issuance of stock		81,000		108,100
Purchase of treasury stock and repurchase of stock from employees and directors for minimum tax withholdings		(66,400)		(121,600)
Net cash provided by (used in) financing activities		7,702,900		424,000

Net increase (decrease) in cash and cash equivalents		12,200		184,200

CASH AND CASH EQUIVALENTS, beginning of period		1,110,000		50,000

CASH AND CASH EQUIVALENTS, end of period	$	1,122,200	$	234,200

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Capital expenditures included in accounts payable	$	3,362,900	$	657,100

See accompanying notes to unaudited consolidated financial statements.

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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 28, 2021, filed with SEC on June 11, 2021.

On October 28, 2020, the Company entered into a definitive Inventory Purchase Agreement (the “Agreement”) which, at a closing held on December 2, 2020, resulted in the Company’s exit from its retail business through the sale to Voice Comm, LLC, a Delaware limited liability company (“Voice Comm”), of most of the Company’s retail inventory, the Ventev brand as it relates to mobile device accessory products, and certain other retail-related assets. The accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued operation. See Note 9, “Discontinued Operations”, for further information.

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.

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Recently issued accounting pronouncements adopted:

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, and the methodology for calculating income taxes in an interim period. This ASU is effective for periods beginning after December 15, 2020. The Company adopted this standard on the first day of the 2022 fiscal year on a prospective basis. The standard did not have a material impact on the financial statements.

Note 3. Intangible Assets

Intangible assets, net on our Consolidated Balance Sheets as of December 26, 2021 and March 28, 2021, consists of capitalized software for internal use and indefinite-lived intangible assets. Capitalized software for internal use, net of accumulated amortization, was $26,671,500 and $18,341,100 as of December 26, 2021 and March 28, 2021, respectively. Amortization expense of capitalized software for internal use was $263,200 and $364,900 for the three months ended December 26, 2021 and December 27, 2020, respectively. Amortization expense of capitalized software for internal use was $658,400 and $1,515,700 for the nine months ended December 26, 2021 and December 27, 2020, respectively. The Company continues to capitalize costs related to an ongoing information technology project, which will be amortized after the project has been completed and placed in-service.

Indefinite-lived intangible assets were $795,400 as of December 26, 2021 and March 28, 2021.

Note 4. Borrowings Under Revolving Credit Facility

On October 29, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the Company’s primary operating subsidiaries as co-borrowers, the Lender(s) party thereto from time to time, and Wells Fargo Bank, National Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank. Terms used, but not defined, in this and the following ten (10) paragraphs have the meanings set forth in the Credit Agreement or the related Guaranty and Security Agreement, and the description refers to the Credit Agreement as in effect at fiscal quarter ended December 26, 2021 and without regard to subsequent events. This facility replaced a previously existing credit facility among the Company and certain subsidiaries, the lenders party thereto (which included Wells) and Truist Bank (successor by merger to SunTrust Bank), as administrative agent.

The Credit Agreement provides for a senior secured asset based revolving credit facility of up to $75 million (the “2020 Revolving Credit Facility”), which matures on April 29, 2024. The 2020 Revolving Credit Facility includes a $5.0 million letter of credit sublimit and provides for the issuance of Swingline Loans. The applicable Credit Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the 2020 Revolving Credit Facility to an aggregate commitment amount of up to $125 million with optional additional commitments from then existing Lenders or new commitments from additional lenders, although no Lender is obligated to increase its commitment. Availability is determined in accordance with the Borrowing Base, which is generally 85% of Eligible Accounts minus the Dilution Reserve, plus a calculated value of Eligible Inventory aged less than 181 days plus the lesser of $4 million and a calculated value of Inventory aged more than 180 days minus a calculated Reserve, as further detailed and set forth in the Credit Agreement.

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Borrowings initially accrue (or accrued) interest from the applicable borrowing date: (A) if a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin of 2.25% until the March 28, 2021 financial statements were delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then the LIBOR Rate plus 2.25% or (ii) if the Fixed Charge Coverage Ratio is greater than or equal to 1.10:1.00, then the LIBOR Rate plus 2.00%; (B) if a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 1.25% per annum until the March 31, 2021 financial statements were delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then the Base Rate plus 1.25% or (ii) if the Fixed Charge Coverage Ratio is greater than or equal to 1.10:1.00, then the Base Rate plus 1.00%. The Credit Agreement contains a LIBOR floor of 0.25% so that if the LIBOR Rate is below 0.25%, then the LIBOR Rate will be deemed to be equal to 0.25% for purposes of the Credit Agreement.

The Company is required to pay a monthly Unused Line Fee on the average daily unused portion of the 2020 Revolving Credit Facility, at a per annum rate equal to 0.25%.

Pursuant to Amendment No. 1 to Credit Agreement dated July 12, 2021 ( “Amendment No. 1”), between Tessco and Wells, Wells agreed to a 25 basis point reduction in certain otherwise applicable rates and fees over an agreed period, as set forth in the Amendment No. 1. Amendment No. 1 also included certain changes related to the transition away from the use of LIBOR as a rate option, and is expected to simplify day-to-day management of the 2020 Revolving Credit Facility. On December 26, 2021, the interest rate applicable to borrowings under the secured 2020 Revolving Credit Facility was 2.10%, which includes the 25 basis point reduction included in the Amendment as discussed above.

Following an Event of Default, the Lenders’ may at their option increase the applicable per annum rate to a rate equal to 2 percentage points above the otherwise applicable rate and with certain events of default, such increase is automatic. In addition, the 25 basis point reduction, insofar as then otherwise available under Amendment No. 1, will terminate, and at the written election of the Agent or the Required Lenders at any time while an Event of Default exists, the Company will no longer have the option to request that revolving loans be based on the LIBOR Rate.

The Credit Agreement contains 1 financial covenant, a Fixed Charge Coverage Ratio, which is tested only if Excess Availability (generally, borrowing availability less the aggregate of trade payables and book overdrafts, each in excess of historical amounts) is less than the greater of (a) 16.7% of the maximum amount of the Credit Facility (at closing, $12,525,000) and (b) $12,500,000. In addition, the Credit Agreement contains provisions 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.

Borrowings under the 2020 Revolving Credit Facility were initially used to pay all indebtedness outstanding under the previously existing credit facility among the Company and certain subsidiaries, the lenders party thereto and Truist Bank (successor by merger to SunTrust Bank), as administrative agent, and may be used for working capital and other general corporate purposes, and as further provided in, and subject to the applicable terms of, the Credit Agreement. As of December 26, 2021, borrowings under the secured 2020 Revolving Credit Facility totaled $38.3 million and, therefore, the Company had $36.7 million available for borrowing as of December 26, 2021, subject to the Borrowing Base limitation and compliance with the other applicable terms referenced above.

The Company is required to make certain prepayments under the 2020 Revolving Credit Facility under certain circumstances, including from net cash proceeds from certain asset dispositions in excess of certain thresholds.

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The Credit Agreement contains representations, warranties and affirmative covenants. The Credit Agreement also contains negative covenants and restrictions on, among other things: (i) Indebtedness, (ii) liens, (iii) fundamental changes, (iv) disposition of assets, (v) restricted payments (including certain restrictions on redemptions and dividends), (vi) investments and (vii) transactions with affiliates. The Credit Agreement also contains events of default, such as payment defaults, cross-defaults to other material indebtedness, misrepresentations, bankruptcy and insolvency, the occurrence of a Change of Control and the failure to observe the negative covenants and other covenants contained in the Credit Agreement and the other loan documents.

Pursuant to a related Guaranty and Security Agreement, by and among the Company, the other borrowers under the Credit Agreement and other operating subsidiaries of the Company (collectively, the “Loan Parties”), and Wells, as Administrative Agent, the Obligations, which include the obligations under the Credit Agreement, are guaranteed by the Loan Parties, and secured by continuing first priority security interests in the Company’s and the other Loan Parties’ (including both borrowers and guarantors) Accounts, Books, Chattel Paper, Deposit Accounts, General Intangibles, Inventory, Negotiable Collateral, Supporting Obligations, Money, Cash Equivalents or other assets that come into the possession, custody or control of the Agent or any Lender, and related assets, and the proceeds and products of any of the foregoing (the “Collateral”). The security interests in the Collateral are in favor of the Administrative Agent, for the benefit of the Lenders party to the Credit Agreement from time to time and any other holders of the Obligations. The Obligations secured also include 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.

See Note 10, “Subsequent Events”, for disclosure related to further amendments to the Credit Agreement occurring subsequent to December 26, 2021.

Note 5. 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 nine-month period ended December 26, 2021 because the Company operated at a loss. The number of diluted weighted-average common shares would have been 8,964,892 for the nine months ended December 26, 2021, if the Company was in a positive earning position. At December 26, 2021, stock options with respect to 975,458 shares of common stock were outstanding, of which 850,458 were anti-dilutive and not included in diluted EPS because the stock options’ exercise price was greater than the average market price of the common shares. There were 0 anti-dilutive PSUs or RSUs outstanding as of December 26, 2021.

Note 6. Business Segments

After exiting its Retail business, the Company operates as 1 business segment. The Company will continue to present revenue and gross profit by the following customer markets: (1) public carriers, which are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) commercial, formerly value-added resellers and integrators, which includes value-added resellers, the government channel and private system operator markets.

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Market activity for the third quarter and first nine months of fiscal years 2022 and 2021 are as follows (in thousands):


	Three Months Ended				Nine Months Ended
		December 26, 2021		December 27, 2020		December 26, 2021		December 27, 2020
Revenues
Public carrier	$	43,409	$	42,923	$	136,348	$	114,810
Commercial		59,053		56,315		179,607		169,798
Total revenues	$	102,462	$	99,238	$	315,955	$	284,608

Gross Profit
Public carrier	$	5,484	$	4,780	$	16,365	$	12,078
Commercial		14,137		12,536		42,738		38,812
Total gross profit	$	19,621	$	17,316	$	59,103	$	50,890

Note 7. Shares Withheld

The Company withholds shares of common stock from its employees and directors at their request, equal to the minimum federal and state tax withholdings or proceeds due to the Company related to vested PSUs, stock option exercises and vested RSUs. For the nine months ended December 26, 2021 and December 27, 2020, the aggregate value of the shares withheld totaled $66,400 and $121,600, respectively.

Note 8. Concentration of Risk

The Company’s future results could be negatively impacted by the loss of certain customer and/or vendor relationships.

For the fiscal quarters ended December 26, 2021 and December 27, 2020, revenue from the Company’s largest customer accounted for 10.0% and 15.3% of revenue from continuing operations, respectively. No other customers accounted for more than 10% of consolidated revenues in either quarter.

For the nine months ended December 26, 2021, no customers accounted for more than 10% of consolidated revenues. For the nine months ended December 27, 2020, revenue from the Company’s largest customer accounted for 12.3% of revenue from continuing operations. No other customers accounted for more than 10% of consolidated revenues.

For the fiscal quarters ended December 26, 2021 and December 27, 2020, sales of products purchased from the Company’s largest supplier accounted for 26.4% and 30.2% of revenue from continuing operations, respectively. No other suppliers accounted for more than 10% of consolidated revenues in either quarter.

For the nine months ended December 26, 2021 and December 27, 2020, sales of products purchased from the Company’s largest supplier accounted for 29.6% and 27.9% of revenue from continuing operations, respectively. No other suppliers accounted for more than 10% of consolidated revenues in either quarter.

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Note 9. Discontinued Operations

At a closing on December 2, 2020, the Company sold most of its retail inventory, the Ventev brand as it relates to mobile device accessory products, and certain other retail-related assets to Voice Comm, LLC (“Voice Comm”). Cash proceeds of $9.5 million were received at closing, which occurred during the third quarter of fiscal 2021. As part of the sale agreement, the Company is entitled to royalty payments of up to $3.0 million in the aggregate on the sale of Ventev branded products by Voice Comm over a four-year period after the closing.

As a result of the disposal described above, the operating results of the former Retail segment has been included in Income (loss) from discontinued operations, net of taxes, in the Consolidated Statements of Income (Loss) for all periods presented.

The accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued operation. The following table presents the financial results of the Retail segment for the three and nine months ended December 26, 2021 and December 27, 2020:


	Three Months Ended				Nine Months Ended
	December 26, 2021		December 27, 2020		December 26, 2021		December 27, 2020

Revenues	$	383,800	$	26,413,900	$	2,992,700	$	80,512,800
Cost of goods sold		56,700		21,529,700		1,179,600		67,704,600
Gross profit		327,100		4,884,200		1,813,100		12,808,200
Selling, general and administrative expenses		83,200		3,215,700		636,400		7,442,000
Income (loss) from operations		243,900		1,668,500		1,176,700		5,366,200
Gain on disposal		—		3,020,800		—		3,020,800
Income (loss) from operations before income taxes		243,900		4,689,300		1,176,700		8,387,000
Provision for (benefit from) income taxes		100		(98,200)		(11,200)		681,000
Net income (loss) attributable to discontinued operations	$	243,800	$	4,787,500	$	1,187,900	$	7,706,000

The financial results reflected above may not fully represent our former Retail segment stand-alone operating net profit, as the results reported within Income (loss) from discontinued operations, net of taxes, include only certain costs that are directly attributable to this former segment and exclude certain corporate overhead and operational costs that may have been previously allocated for each period.

The following table summarizes the major classes of assets attributable to discontinued operations that are included in the Current portion of assets held for sale in the Company’s Consolidated Balance Sheets as of December 26, 2021 and March 28, 2021:


	December 26,		March 28,
	2021		2021

ASSETS
Product inventory, net	$	—	$	1,196,900
Current portion of assets held for sale	$	—	$	1,196,900

In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash provided by operating activities from discontinued operations for the nine months ended December 26, 2021 and December 27, 2020 was $5.3 million and $10.6 million, respectively. Cash provided

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by investing activities from discontinued operations was $0 and $9.2 million for the nine months ended December 26, 2021 and December 27, 2020, respectively.

Note 10. Subsequent Events

Symetra Loan and Credit Agreement Amendment No. 2

On December 30, 2021, TESSCO Reno Holding LLC (“Holding”), an indirect wholly owned subsidiary and now owner of the Company‘s approximately 115,000 square foot operating facility located in Reno, Nevada (the “Reno Facility”), borrowed an aggregate sum of $6.5 million from Symetra Life Insurance Company (“Symetra”), The indebtedness is evidenced by a Real Estate Note of Holding (the “ Note”) that provides for monthly payments of $47,857.78, bears interest at a fixed rate of 3.38% per annum for the first 5 years, is subject to adjustment after 5 years and again after 10 years, and matures in approximately 15 years. The Note and related obligations are secured by a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the “Deed of Trust”) on the Reno Facility. The net proceeds from this borrowing transaction (the “Symetra Loan”) have since been applied to repayment of a portion of the revolving balance under the Company’s 2020 Revolving Credit Facility. An additional $250,000 is to be advanced under the Symetra Loan after roof and possible related repairs to the Reno Facility are satisfactorily completed. The Symetra Loan is limited recourse to the Reno Facility, with typical exceptions in which case it is recourse to Holding, a special purpose entity formed by the Company to own the Reno Facility and related assets.

In anticipation of the Symetra Loan, the Company, TESSCO Inc. and our other operating subsidiaries, and Wells, entered into Amendment No. 2 to Credit Agreement and Consent dated December 29, 2021 (“Amendment No. 2”), which amended the Credit Agreement discussed in Note 4 above. Pursuant to Amendment No. 2, and subject to its terms and conditions, among other things, Wells consented to the Symetra Loan, without requiring that Holding become a borrower or guarantor under the Credit Agreement.

Through the Symetra Loan, the Company was able to fix a portion of its outstanding indebtedness at a market interest rate, and reduce the outstanding balance under the 2020 Revolving Credit Facility, without reducing the overall commitment under the 2020 Revolving Credit Agreement. As a result, and without regard to other factors, liquidity was effectively increased.

Credit Agreement Amendment No. 3

On January 5, 2022, at the Company’s request, the Company and its operating subsidiaries, and Wells, entered into Amendment No. 3 to Credit Agreement and Amendment No. 1 to Guaranty and Security Agreement (“Amendment No. 3”), subject to the terms and conditions of which Wells agreed to increase the Commitment under the 2020 Revolving Credit Facility from $75 million to $80 million. Among the terms and conditions, the Company agreed to revert to the interest rate margins originally provided for under the terms of the 2020 Revolving Credit Facility (and which had previously been modified pursuant to Amendment No. 1 to Credit Agreement), as well as change to the methodology for determining the Applicable Margin, and agreed to a $10 million Availability Block for a one year period, but was relieved of any Fixed Charge Coverage Ratio testing for the same one year period without regard to the amount of Excess Availability during that period. Following this one year period, a $15 million Excess Availability requirement will be imposed unless a Fixed Charge Coverage Ratio of 1:1 is achieved. As a result, and assuming the Company is otherwise in compliance with the terms of the 2020 Revolving Credit Agreement, as amended, and has sufficient Borrowing Base assets, the amount available for borrowing under the 2020 Revolving Credit Facility, without having to meet any Fixed Charge Coverage Ratio, is increased from approximately $62.5 million to $70 million for calendar year 2022.

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Amendment No. 3 also contemplates a pledge within sixty (60) days by Tessco Inc. to Wells of the 184,000 square foot Hunt Valley, Maryland Global Logistics Center (the “GLC”), pursuant to a mortgage in form and substance satisfactory to Wells, to be delivered by TESSCO Inc. as additional collateral for the Obligations under the 2020 Revolving Credit Facility. The terms of Amendment No. 3 provide for release of the mortgage upon achievement by the Company of certain financial metrics, including a 1:1 Fixed Charge Coverage Ratio for at least six consecutive months and a minimum Excess Availability of $17.5 million, and the absence of any Default or Event of Default. The Company had previously agreed not to pledge or encumber the GLC without the consent of Wells. Capitalized terms used in this and the immediately preceding paragraph have the meanings ascribed to them under the Revolving Credit Agreement, as amended, including pursuant to Amendment No. 3.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This commentary should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations from the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2021, filed with the SEC on June 11, 2021.

Business Overview and Environment

TESSCO architects and delivers innovative product and value chain solutions to support wireless systems. Although we sell products to customers in many countries, approximately 97% of our sales are made to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, and Reno, Nevada.

On December 2, 2020, we sold most of our Retail inventory and certain other retail-related assets to Voice Comm. In connection with this sale, we assigned or licensed certain Ventev^®- related intellectual property to Voice Comm, including our Ventev^® trademark for their use in connection with the sale of mobile device and accessory products. Together, this resulted in our exit from the Retail business. Cash proceeds of $9.5 million were received at the time of sale. As part of the sale agreement, we are entitled to royalty payments, up to $3.0 million in the aggregate, on the sale of Ventev^® branded products by Voice Comm over a four-year period after closing. As a result of the disposal, the operating results of our former Retail segment have been included in Income (loss) from discontinued operations, net of taxes in the Consolidated Statements of Income (Loss) for all periods presented. We retain and continue to utilize the Ventev^® tradename for non-mobile device accessory products.

As a result of this sale and our exit from the Retail business during the third quarter of fiscal 2021, we now operate as one business segment.

We provide certain information within two key markets: (1) public carriers, which are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) commercial, which 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 telecommunications. 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.

The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors. In addition, many manufacturers sell direct. 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

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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 have been affected from time to time in the past by the loss and changes in the business habits of significant customers and suppliers and expect that we will again be so affected from time to time in the future. Our customer and supplier relationships could also be affected by the overall global economic environment or other events beyond our control, including the COVID-19 pandemic. We believe, however, that our strength in service, the breadth and depth of our product offering, 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

Third quarter of Fiscal Year 2022 Compared with Third quarter of Fiscal Year 2021

Total Revenues. Revenues for the third quarter of fiscal 2022 increased 3.2% compared with the third quarter of fiscal 2021. Revenues in our commercial market increased 4.9%, and revenue in our public carrier market increased 1.1%. This increase in the public carrier market was due to gaining additional market share and improving macro-economic trends as the impact of the COVID-19 pandemic on our business lessens. The increase in commercial market revenues was also largely driven by the lower impact of the COVID-19 pandemic.

Cost of Goods Sold. Cost of goods sold for the third quarter of fiscal 2022 increased 1.1% compared with the third quarter of fiscal 2021. Cost of goods sold in our commercial market increased by 2.6% and in our public carrier market decreased by 0.6%. The increase in cost of goods sold in the commercial market was largely driven by changes in revenue, as discussed above, while the decrease in the public carrier market was primarily attributable to a more favorable customer mix.

Total Gross Profit. Gross profit for the third quarter of fiscal 2022 increased by 13.3% compared to the third quarter of fiscal 2021. 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 17.4% in the third quarter of fiscal 2021 to 19.1% in the third quarter of fiscal 2022. Gross profit margin in our public carrier market increased to 12.6% from 11.1% in the same quarter last year. Gross profit margin in our commercial market increased to 23.9% in the third quarter of fiscal 2022 from 22.3% in the same quarter last year. The gross margin improvements in the public carrier market are primarily related to changes in customer and product mix. The gross margin increase in the commercial market is primarily attributable to product and customer mix, including higher sales of our higher margin Ventev^® products. Gross margins in both markets 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 decreased by 17.8% or $4.2 million for the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021. Selling, general and administrative expenses as a percentage of revenues decreased from 23.8% for the third quarter of fiscal 2021, to 18.9% for the third quarter of fiscal 2022.

The decrease in our selling, general and administrative expenses was primarily due to a decrease of $3.4 million in corporate support expenses and a decrease of $1.2 million in performance compensation expense. The corporate support expenses decrease is attributable to one-time non-recurring costs incurred in the third quarter of fiscal 2021 in response to a consent solicitation initiated by a shareholder group in fiscal 2021. The decrease in performance compensation expense is a result of updated expected results as compared to the targets set for our annual cash and equity incentive programs. These decreases were partially offset by a $1.1 million increase in freight costs in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021. The increase in freight costs is primarily attributable to higher third-party costs due to macroeconomic factors, including inflation. The increase in freight costs also corresponds to the increase in sales during the third quarter of fiscal 2022 as compared the same period in the prior year. As mentioned above, we have increased the amount charged to customers for freight costs, which are included in revenue and gross profit.

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customers and make decisions regarding extension of credit terms to such customers based on this evaluation. We had bad debt expense of $22,900 and $7,500, for the three months ended December 26, 2021 and December 27, 2020, respectively.

Interest, Net. Net interest expense decreased from $151,200 for the third quarter of fiscal 2021 to $131,000 for the third quarter of fiscal 2022. Significantly lower interest rates in the third quarter of fiscal 2022 were partially offset by an increase in the average amount outstanding under our 2020 Revolving Credit Facility during the third quarter of fiscal 2022. This decrease in interest expense is partially offset by a decrease in capitalized interest, which decreased from $145,300 in the third quarter of fiscal 2021 to $144,900 for the third quarter of fiscal 2022.

Income Taxes, Net Income and Diluted Earnings per Share. In the third quarter of fiscal 2022, the Company reported an income tax benefit of $1.1 million related to a change in the tax accounting method for computer software development costs, which was adopted during the quarter. As a result of the change, the Company expects to receive an additional tax refund for fiscal 2021 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Including the impact of the change, the total benefit from income taxes for the third quarter of fiscal 2022 was $1.1 million compared to a benefit of $0.7 million for the third quarter of fiscal 2021. Net income of $1.2 million in the third quarter of fiscal 2022 improved significantly from the net loss of $5.7 million for the third quarter of fiscal 2021. Diluted earnings per share was $0.14 for the third quarter of fiscal 2022, compared to a loss of $0.66 per share for the corresponding prior-year quarter.

Discontinued Operations. Net income from discontinued operations was $0.2 million for the third quarter of fiscal year 2022 compared to $4.8 million for the third quarter of fiscal year 2021. See Note 9, “Discontinued Operations”, to our Consolidated Financial Statements included as part of this Quarterly Report on Form 10-Q, for further discussion.

First Nine Months of Fiscal Year 2022 Compared with First Nine Months of Fiscal Year 2021

Total Revenues. Revenues for the first nine months of fiscal 2022 increased 11.0% compared with the first nine months of fiscal 2021. Revenues in our commercial market increased 5.8%, and revenue in our public carrier market increased 18.8%. This increase in the public carrier market was due to gaining additional market share and improving macro-economic trends as the impact of the COVID-19 pandemic lessens. The increase in commercial market revenues was also largely driven by the lower impact of the COVID-19 pandemic.

Cost of Goods Sold. Cost of goods sold for the first nine months of fiscal 2022 increased 9.9% compared with the first nine months of fiscal 2021. Cost of goods sold in our commercial market and public carrier market increased by 4.5% and 16.8%, respectively. These increases in cost of goods sold in both markets were largely driven by changes in revenue and customer mix, as discussed above.

Total Gross Profit. Gross profit for the first nine months of fiscal 2022 increased by 16.1% compared to the first nine months of fiscal 2021. This increase was primarily due to increased revenues. Overall gross profit margin increased from 17.9% in the first nine months of fiscal 2021 to 18.7% for the first nine months of fiscal 2022. Gross profit margin in our commercial market increased from 22.9% to 23.8% in the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021. Gross profit margin in our public carrier market increased to 12.0% in the first nine months of fiscal 2022 as compared to 10.5% in the first nine months of fiscal 2021. The gross margin improvements in both markets are primarily attributable to changes in customer and product mix, as well as higher freight charges to customers in response to and to partially offset increased freight costs incurred, which is included in selling, general, and administrative expenses.

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Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased by 5.9% or $3.9 million for the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021. Selling, general and administrative expenses as a percentage of revenues decreased from 23.2% for the first nine months of fiscal 2021, to 19.6% for the first nine months of fiscal 2022.

The decrease in our selling, general and administrative expenses was primarily due to a decrease of $4.0 million in corporate support expenses, as well as $1.4 million lower information technology costs and $1.2 million lower performance compensation costs. The corporate support expenses decrease is attributable to one-time non-recurring costs incurred in fiscal year 2021 in response to a consent solicitation initiated by a shareholder group in fiscal 2021. The decrease in information technology is primarily attributable to lower depreciation costs and the decrease in performance compensation expense is a result of updated expected results as compared to the targets set for our annual cash and equity incentive programs. These decreases were partially offset by a $3.3 million increase in freight costs during the first nine months of fiscal 2022 as compared to the first nine months of fiscal 2021. The increase in freight costs is primarily attributable to higher third-party costs due to macroeconomic factors, including inflation. The increase in freight costs also correspond to the increase in sales during the nine months ended December 26, 2021 as compared to the same period in the prior year. As mentioned above, we have increased the amount charged to customers for freight costs, which are included in revenue and gross profit.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. We had bad debt recovery, net of expense of $103,200 and $780,600, for the nine months ended December 26, 2021 and December 27, 2020, respectively.

Interest, Net. Net interest expense increased from $367,800 for the nine months of fiscal 2021 to $503,400 for the first nine months of fiscal 2022. An increase in the average amount outstanding on our 2020 Revolving Credit Facility and higher interest rates resulted in increased interest expense in the first nine months of fiscal 2022. This increase in interest expense is partially offset by an increase in capitalized interest, which increased from $252,200 in the first nine months of fiscal 2021 to $492,500 in the first nine months of fiscal 2022.

Income Taxes, Net Income and Diluted Earnings per Share. The Company reported an income tax benefit of $1.1 million during the third quarter of fiscal 2022 related to a change in the tax accounting method for computer software development costs, which was adopted during the quarter. As a result of the change, the Company expects to receive an additional tax refund for fiscal 2021 under the CARES Act. Including the impact of the change, the total benefit from income taxes for the first nine months of fiscal 2022 was $1.2 million compared to a benefit of $1.9 million for the first nine months of fiscal 2021. Net loss of $2.3 million in the first nine months of fiscal 2022 improved significantly from the net loss of $13.5 million for the corresponding prior-year period. Diluted loss per share was $0.26 for the first nine months of fiscal 2022, compared to a loss of $1.56 per share for the corresponding prior-year period.

Discontinued Operations. Net income from discontinued operations was $1.2 million for the first nine months of fiscal year 2022 compared to $7.7 million for the first nine months of fiscal year 2021. See Note 9, “Discontinued Operations”, to our Consolidated Financial Statements included as part of this Quarterly Report on Form 10-Q, for further discussion.

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Liquidity and Capital Resources

The following table summarizes our cash flows provided by or used in operating, investing and financing activities for the nine months ended December 26, 2021 and December 27, 2020.


	Nine Months Ended
	December 26, 2021		December 27, 2020
Cash flow provided by (used in) operating activities	$	297,600	$	(388,000)
Cash flow provided by (used in) investing activities		(7,988,300)		148,200
Cash flow provided by (used in) financing activities		7,702,900		424,000
Net increase (decrease) in cash and cash equivalents	$	12,200	$	184,200

Net cash provided by operating activities was $0.3 million for the first nine months of fiscal 2022, compared with net cash used in operating activities of $0.4 million for the first nine months of fiscal 2021. The fiscal 2022 inflow was due to the decrease in inventory, accounts receivable, and income taxes receivable, partially offset by the net loss during the period and a decrease in accounts payable.

Net cash used in investing activities was $8.0 million for the first nine months of fiscal 2022, compared to net cash provided by investing activities of $0.1 million in the first nine months of fiscal 2021. Fiscal 2022 cash outflow is primarily attributable to the Company’s investments in information technology. Fiscal 2021 cash inflow was attributable to the Company’s sale of its Retail business totaling $9.2 million, offset by investments in information technology of $9.1 million.

Net cash provided by financing activities was $7.7 million for the first nine months of fiscal 2022, compared to net cash provided by financing activities of $0.4 million for the first nine months of fiscal 2021. Utilization of our asset-based secured 2020 Revolving Credit Facility during the first nine months of fiscal 2022 resulted in a cash inflow of $7.7 million during this period. Utilization of the 2020 Revolving Credit Facility and our prior asset-based facility resulted in a cash inflow of $0.4 million during the nine months of fiscal 2021.

On October 29, 2020, we entered into a Credit Agreement (the “Credit Agreement”) among the Company, the Company’s primary operating subsidiaries as co-borrowers, the Lender(s) party thereto from time to time, and Wells Fargo Bank, National Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank, and terminated our previous secured Revolving Credit Facility. Terms used, but not defined, in this paragraph have the meanings set forth in the Credit Agreement or the related Guaranty and Security Agreement, and the description refers to the Credit Agreement as in effect at fiscal quarter ended December 26, 2021 and without regard to subsequent events. The Credit Agreement provides for a senior secured asset based revolving credit facility of up to $75 million (the “2020 Revolving Credit Facility”), which matures in forty-two months, on April 29, 2024. This facility replaced a previously existing facility. As of December 26, 2021, borrowings under the secured 2020 Revolving Credit Facility totaled $38.3 million; therefore, we then had $36.7 million available, subject to the Borrowing Base limitations and compliance with the other applicable terms of the Credit Agreement, including the financial and other covenants discussed or referred to in Note 4 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Borrowings under the Credit Agreement accrue interest at the rates as discussed in Note 4 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

We believe that our existing cash, payments from customers and availability under the secured 2020 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 2020 Revolving Credit Facility. Our increased focus over the past several years on business

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opportunities for sales to our public carrier customers led to the recent expansion of our borrowing limits, as now reflected in the 2020 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 December 26, 2021, we do not have any material capital expenditure commitments. See Note 10, “Subsequent Events”, to our Consolidated Financial Statements included as part of this Quarterly Report on Form 10-Q, for further discussion on certain events impacting the Company’s liquidity.

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 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 Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

For a detailed discussion on our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended March 28, 2021, filed with the SEC on June 11, 2021.

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 SEC, under the heading “Risk Factors” and otherwise. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject.

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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 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 Securities and Exchange Commission. Also available on our website is our Code of Business Conduct and Ethics.

Item 4. Controls and Procedures.

The Company’s management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the design and operation of the Company’s disclosure controls

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and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this quarterly report. Controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of these controls and procedures required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act, the Company’s management, including the CEO and CFO, have concluded that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. During the period covered by this quarterly report, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

There are no material pending legal proceedings in which we or our subsidiaries is a party or in which any of our or their property is the subject.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On January 27, 2021, the Board of Directors of the Company formally appointed Timothy Bryan as Chairman of the Board. Since the resignation in August 2021 of Paul Gaffney, who previously served as Chairman of the Board, Mr. Bryan has served as acting Chairman. The Board has now formalized Mr. Bryan’s appointment as Chairman, to serve at the discretion of the Board.

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Item 6. Exhibits.

(a)Exhibits:


31.1.1*		Certification of Chief Executive Officer required by Rule 13a–14(a) or 15d–14(a) of the Securities Exchange Act of 1934, as amended pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2.1*		Certification of Chief Financial Officer required by Rule 13a–14(a) or 15d–14(a) of the Securities Exchange Act of 1934, as amended pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1.1*		Certification of periodic report by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2.1*		Certification of periodic report by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1*		The following financial information from TESSCO Technologies, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended December 26, 2021 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three and nine months ended December 26, 2021 and December 27, 2020; (ii) Consolidated Balance Sheet at December 26 and March 28, 2021; (iii) Consolidated Statement of Cash Flows for the nine months ended December 26, 2021 and December 27, 2020; and (iv) Notes to Consolidated Financial Statements.
104.1*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)

*Filed herewith

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TESSCO Technologies Incorporated


Date: February 4, 2022
	By:	/s/ Aric M. Spitulnik
		Aric Spitulnik
		Chief Financial Officer
		(principal financial and accounting officer)

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Tessco (TESS) 10-Q2022 Q3 Quarterly report

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