Technical Communications (NASDAQ:TCCO)

TCCO capped off its fiscal 2010 year with a blow out quarter

For the year ended September 25, 2010 vs 2009, the Company reported

• net income of $7,868,000 compared to net income of $943,000
• EPS of $4.68 per share compared to $0.65 per share
• revenue of $21,551,000 compared $7,752,000 for the year ended September 26, 2009.  

For the quarter ended September 25, 2010 vs. 2009, the Company reported

• net income of $3,176,000 compared to net income of $235,000
• EPS $1.74 per share compared to $0.16
• revenue of $6,861,000 compared to $1,765,000

Commenting on corporate performance, Carl H. Guild, Jr., President and Chief Executive Officer of TCC, said, "TCC had a record year in fiscal 2010, far surpassing any year in its 49 year history. The primary driver for our growth has been the need for encryption equipment to provide secure national communications in Afghanistan. TCC made substantial shipments on contracts supporting this endeavor through the fourth quarter of fiscal 2010. The fiscal 2010 contracts have been followed with additional orders in the first quarter of our 2011 fiscal year. It should be noted, however, that while the continued business in Afghanistan is encouraging, our revenue in fiscal 2011 is expected to return to the more modest levels achieved prior to 2010.  Our backlog at September 25, 2010 remained strong at $3.4 million and increased to $6.8 million during the first quarter of fiscal 2011. The Company expects to deliver these orders during the remainder of our fiscal 2011 year.

GeoTeam® Note:

It is unclear how the market will ultimately react to comments that business will return to more modest levels. Lately, TCCO has had a habit of under promising and over delivering. Regardless, we look to unwind our position we started establishing on February 29, 2010 at $6.15.  TCCO shares are up over $2.00 in premarket trading to $16.65.

As expected, Technical Communications reports strong, but sequentially lower 2010 second quarter financial results.

Based on company backlog and information in our recent research note, TCCO seems poised for a strong second half. 

On February 8, 2010 we issued a short-term trading alert on TCCO @ $6.15.  Strong first quarter EPS and the announcement of a special dividend sent the stock to reach an eventual high of $13.15 before settling into its current $9.00 price range.

We also discussed a caveat:

Research Excerpt: As often happens in these cases, there exists caveat. It appears that a large part of the quarter's revenues were driven by unusually large orders from the U.S. Government Foreign Military Sales (FMS) Program. Verbiage in its press release somewhat tempered our enthusiasm.

"Shipments in the second quarter of fiscal 2010 are expected to remain strong although somewhat lower than our first quarter, and we expect that shipments over the remainder of the year will slow down as compared to the first half based on the current backlog and delivery requirements."

Well, yesterday after the close, TCCO announced some significant news, maybe a short-term game changer:

"Technical Communications Corporation (OTC BB: TCCO.OB), an international communication security and encryption technology company, has received orders valued at approximately $9.7 million."

"Accelerated deliveries have been requested for this order which is planned to be substantially completed in fiscal 2010 and is expected to raise TCC's sales for 2010 to record levels of approximately $20 million."

TCCO reported $7.8 million in revenues in its 2009 September fiscal year.

Of course management snuck in another caveat:

"This immediate need generates significant growth for TCC, and although we expect to continue to supply the Afghan forces in the future we do not expect individual orders of this magnitude."

We also need to attain information on The margins of this contract, but this news leads us to believe that the third and fourth quarters will be large; maybe as big as the first quarter fully taxed EPS of $0.90. Investors need to keep in mind the second quarter ended March could be substantially less than the first quarter, which could throw a slight wrench into our call.  Still, TCCO has taxed trailing EPS of $1.00 giving it a P/E of 9.65 and is selling at less than two times book.  The new development and a tiny share float gives us reason to believe that TCCO shares could rise significantly. Thus, we will keep our short-term trade call on as well as code TCCO as a GeoSpecial on the Radar @ $9.60 until we gain a better grip on the margins of the new contract.

Yesterday morning, we issued a trading alert on TCCO at $6.15 . The company reported blow out results for its fiscal 2010 first quarter.

TCCO shares continued to climb in today's trading session, closing at $9.00, spurred by news that it will issue a special dividend of $2.00 per share and possibly initiate a regular quarterly dividend.

As often happens in these cases, there exists caveat. It appears that a large part of the quarter's revenues were driven by unusually large orders from the U.S. Government Foreign Military Sales (FMS) Program. Verbiage in its press release somewhat tempered our enthusiasm.

"Shipments in the second quarter of fiscal 2010 are expected to remain strong although somewhat lower than our first quarter, and we expect that shipments over the remainder of the year will slow down as compared to the first half based on the current backlog and delivery requirements."

Still, the company had been reporting consistent EPS growth over the last three quarters, so there may be hope that even if we see sequential declines in EPS, results may still show year over year growth.  We will attempt to interview TCCO to determine if this is the case.