March 6, 2019 -- Comtech Telecommunications Corp.
(NASDAQ:CMTL) today reported its operating results for the second
fiscal quarter ended January 31, 2019 and updated its fiscal
2019 guidance.
Fiscal 2019 Second Quarter Highlights
- Net sales for the second quarter of
fiscal 2019 were $164.1 million as compared to the $133.7 million
achieved during the second quarter of fiscal 2018, representing an
increase of $30.4 million, or 22.7%.
- Bookings during the second quarter of
fiscal 2019 were $123.3 million, with a company-wide book-to-bill
ratio (a measure defined as bookings divided by net sales) of
0.75.
- Backlog as of January 31, 2019 was
$586.4 million. Backlog does not include the portions of multi-year
contracts that have not been funded. As such, the total value of
multi-year contracts that Comtech has received is substantially
higher.
- Comtech received a number of strategic
contracts and orders, including: (i) $11.9 million of orders for
cyber security training solutions; (ii) $11.6 million in orders
from the U.S. Navy to purchase Comtech’s SLM-5650B satellite
modems, upgrade kits and related services; (iii) $6.9 million of
orders to provide ongoing sustainment services to the U.S. Army for
the AN/TSC-198A SNAP VSATs; (iv) $5.2 million of orders from the
U.S. Army to supply Manpack Satellite Terminals, networking
equipment and other advanced VSAT products; (v) a two-year
agreement worth $3.6 million from a Fortune 500 company to provide
location-based services (“LBS”) platforms and applications; (vi)
$3.0 million of orders for antenna feeds to be incorporated into
portable and inflatable 1.2-meter and 2.4-meter SATCOM terminals;
(vii) a $2.5 million order from a top-tier telecommunications
service provider for various LBS platforms and applications; (viii)
a $1.7 million order for satellite block up converters ("BUCs");
and (ix) $1.1 million of incremental funding from the U.S. Army to
support Blue Force Tracking-1 activities.
- GAAP operating income of $12.4 million,
GAAP net income of $7.8 million and GAAP earnings per diluted share
("EPS") of $0.32 reflects the impact of several steps taken by
Comtech to improve operating efficiencies and make progress towards
achieving its long-term business goals. As presented in more detail
in the below table, these steps include: (i) the incurrence of $1.8
million of acquisition plan expenses primarily associated with the
closing of its acquisition of Solacom Technologies Inc.
("Solacom"), which was completed on February 28, 2019; (ii) the
incurrence of $3.9 million of estimated contract settlement costs
related to an ongoing repositioning of Comtech's enterprise
technology product solutions that it initiated during the quarter;
and (iv) a benefit of $3.2 million related to a favorable
resolution of a TCS intellectual property litigation matter.
Excluding the financial impact of these steps, operating income
would have been $14.9 million, net income would have been $9.7
million and earnings per diluted share would have been $0.40.
- Adjusted EBITDA for the second quarter
of fiscal 2019 was $23.2 million as compared to the $14.5 million
achieved during the second quarter of fiscal 2018, representing an
increase of $8.7 million, or 60.0%. Adjusted EBITDA is a non-GAAP
financial measure which is reconciled to the most directly
comparable GAAP financial measure and is more fully defined in the
below table.
- Cash flows from operating activities
were $27.2 million.
In commenting on Comtech’s performance for the second quarter of
fiscal 2019, Fred Kornberg, President and Chief Executive Officer,
noted, "Our second quarter results exceeded our expectations on
almost every front. We generated strong operating results, our
business momentum remains strong and our pipeline of opportunities
is growing. Looking forward, I am very excited about the closing of
our strategic acquisition of Solacom, as it allows us to further
participate in the safety and security markets which we believe are
at growth inflection points. Given the successful execution of our
business strategies to-date and the positive trajectory of our
business, we are increasing our targeted goals for consolidated net
sales and Adjusted EBITDA for fiscal 2019."
Updated 2019 Fiscal Year Financial Targets
- Comtech is increasing its fiscal 2019
consolidated net sales goal to a range of approximately $645.0
million to $660.0 million and is increasing its Adjusted EBITDA
goal to a range of approximately $85.0 million to $89.0 million as
compared to a prior goal for net sales of between $625.0 million to
$640.0 million and Adjusted EBITDA of $84.0 million to $88.0
million. These targets reflect the benefit of strong demand it
continues to see in many of its key product lines as well as a
nominal financial contribution from Solacom. If order flow remains
strong and Comtech can achieve all of its fiscal 2019 business
goals, it is possible that consolidated net sales and Adjusted
EBITDA could be higher than its targeted amounts.
- Comtech's updated GAAP EPS target for
fiscal 2019 is now within a range of $0.86 to $0.98 as compared to
the prior range of $0.95 to $1.08. This change in GAAP EPS reflects
the benefits of increased sales and operating performance, offset
by: (i) net operating expenses of $2.5 million or $0.08 per GAAP
EPS associated with steps taken during the second quarter of fiscal
2019 to improve operating efficiencies and make progress towards
achieving Comtech’s long-term business goals; (ii) an increase in
amortization of intangibles of $0.5 million or $0.02 per GAAP EPS
during the second half of fiscal 2019 related to the acquisition of
Solacom; (iii) an increase in estimated interest expense of $0.8
million or $0.03 per GAAP EPS; and (iv) $1.0 million or $0.03 per
GAAP EPS of acquisition plan expenses expected to be incurred
during the third quarter of fiscal 2019 related to a targeted
acquisition in addition to Solacom.
- Comtech’s updated fiscal 2019 targets
have been impacted by a number of shifts in the anticipated timing
of potential awards and overall product mix changes, including the
impact of the repositioning of its enterprise technology solution
offerings. As such, Comtech now expects third quarter net sales to
approximate the amount it achieved during the second quarter of
fiscal 2019 with GAAP operating income and Adjusted EBITDA
approximating $9.0 million and $20.0 million, respectively. Given
the strength of its backlog and timing of anticipated orders,
Comtech’s fourth quarter of fiscal 2019 is expected to be the peak
quarter of the fiscal year for Adjusted EBITDA.
- After considering the impact of all
GAAP operating expenses, Comtech anticipates consolidated GAAP
operating income, in dollars, to be higher than the $35.1 million
achieved in fiscal 2018 and, as a percentage of consolidated net
sales, to be similar to the 6.2% it achieved in fiscal 2018.
- Comtech's estimated effective income
tax rate for fiscal 2019 (excluding net discrete items) is expected
to approximate 23.0%.
- There is no certainty that Comtech’s
targeted acquisition plan will be successful and, except for the
$1.0 million of acquisition plan expenses anticipated in the third
quarter of fiscal 2019, Comtech’s updated fiscal 2019 financial
targets do not include any impact of such targeted acquisition
plan.Additional information about Comtech’s second quarter
financial results and Business Outlook for Fiscal 2019 is set forth
in Comtech's Quarterly Report on Form 10-Q filed with the SEC today
and Comtech’s second quarter investor presentation which is located
on its website at www.comtechtel.com.
Conference Call
Comtech has scheduled an investor conference call for 8:30 AM
(ET) on Thursday, March 7, 2019. Investors and the public are
invited to access a live webcast of the conference call from the
Investor Relations section of the Comtech website at
www.comtechtel.com. Alternatively, investors can access the
conference call by dialing (877) 876-9173 (domestic), or (785)
424-1667 (international) and using the conference I.D. "Comtech." A
replay of the conference call will be available for seven days by
dialing (800) 839-2435 or (402) 220-7212. In addition, an updated
investor presentation, including earnings guidance, is available on
Comtech's website.
About Comtech
Comtech Telecommunications Corp. designs, develops, produces and
markets innovative products, systems and services for advanced
communications solutions. Comtech sells products to a diverse
customer base in the global commercial and government
communications markets.
Cautionary Statement Regarding Forward-Looking
Statements
Certain information in this press release contains
forward-looking statements, including but not limited to,
information relating to the Company's future performance and
financial condition, plans and objectives of the Company's
management and the Company's assumptions regarding such future
performance, financial condition, and plans and objectives that
involve certain significant known and unknown risks and
uncertainties and other factors not under the Company's control
which may cause its actual results, future performance and
financial condition, and achievement of plans and objectives of the
Company's management to be materially different from the results,
performance or other expectations implied by these forward-looking
statements. These factors include, among other things: the
possibility that the expected synergies from the acquisition of
Solacom Technologies Inc. (“Solacom”) will not be fully realized,
or will not be realized within the anticipated time period; the
risk that Comtech’s and Solacom’s businesses will not be integrated
successfully; the possibility of disruption from the Solacom
acquisition, making it more difficult to maintain business and
operational relationships or retain key personnel; the risk that
the Company will be unsuccessful in implementing a tactical shift
in its Government Solutions segment away from bidding on large
commodity service contracts and toward pursuing contracts for its
niche products with higher margins; the risks associated with
Comtech's ongoing evaluation and repositioning of its enterprise
technology solutions offering in its Commercial Solutions segment;
the nature and timing of receipt of, and the Company's performance
on, new or existing orders that can cause significant fluctuations
in net sales and operating results; the timing and funding of
government contracts; adjustments to gross profits on long-term
contracts; risks associated with international sales; rapid
technological change; evolving industry standards; new product
announcements and enhancements, including the risks associated with
the Company's recent launch of HeightsTM Dynamic Network Access
Technology ("HEIGHTS" or "HDNA"); changing customer demands and or
procurement strategies; changes in prevailing economic and
political conditions; changes in the price of oil in global
markets; changes in foreign currency exchange rates; risks
associated with the Company's legal proceedings, customer claims
for indemnification and other similar matters; risks associated
with the Company’s obligations under its Credit Facility; risks
associated with the Company's large contracts; the impact of H.R.1,
also known as the Tax Cuts and Jobs Act ("Tax Reform"), which was
enacted in December 2017 in the U.S.; and other factors described
in this and the Company's other filings with the Securities and
Exchange Commission.
COMTECH TELECOMMUNICATIONS
CORP.AND SUBSIDIARIESCondensed Consolidated Statements
of Operations(Unaudited)
Three months ended January 31, Six months
ended January 31, 2019 2018 2019 2018 Net
sales $ 164,133,000 133,731,000 $ 324,977,000 255,300,000 Cost of
sales 102,888,000 82,930,000 205,963,000
156,783,000 Gross profit 61,245,000 50,801,000
119,014,000 98,517,000 Expenses: Selling,
general and administrative 31,987,000 27,215,000 63,834,000
55,690,000 Research and development 13,983,000 13,435,000
27,193,000 27,185,000 Amortization of intangibles 4,288,000
5,268,000 8,577,000 10,537,000 Settlement of intellectual property
litigation (3,204,000 ) — (3,204,000 ) — Acquisition plan expenses
1,778,000 — 2,908,000 — 48,832,000
45,918,000 99,308,000 93,412,000
Operating income 12,413,000 4,883,000 19,706,000 5,105,000
Other expenses (income): Interest expense 2,267,000 2,519,000
4,936,000 5,107,000 Write-off of deferred financing costs — —
3,217,000 — Interest (income) and other (51,000 ) (48,000 ) 15,000
(9,000 ) Income before provision for (benefit from)
income taxes 10,197,000 2,412,000 11,538,000 7,000 Provision for
(benefit from) income taxes 2,371,000 (13,349,000 ) 244,000
(14,094,000 ) Net income $ 7,826,000
15,761,000 $ 11,294,000 14,101,000 Net
income per share: Basic $ 0.33 0.66 $ 0.47
0.59 Diluted $ 0.32 0.66 $ 0.47 0.59
Weighted average number of common
sharesoutstanding – basic
24,034,000 23,816,000 24,017,000 23,805,000
Weighted average number of common and
commonequivalent shares outstanding – diluted
24,168,000 23,953,000 24,245,000 23,942,000
COMTECH TELECOMMUNICATIONS
CORP.AND SUBSIDIARIESCondensed Consolidated Balance
Sheets
January 31, 2019 July 31, 2018
(Unaudited) (Audited) Assets
Current assets: Cash and cash equivalents $ 45,997,000 43,484,000
Accounts receivable, net 138,920,000 147,439,000 Inventories, net
87,395,000 75,076,000 Prepaid expenses and other current assets
13,493,000 13,794,000 Total current assets
285,805,000 279,793,000 Property, plant and equipment, net
28,391,000 28,987,000 Goodwill 290,633,000 290,633,000 Intangibles
with finite lives, net 232,219,000 240,796,000 Deferred financing
costs, net 3,495,000 2,205,000 Other assets, net 2,784,000
2,743,000 Total assets $ 843,327,000 845,157,000
Liabilities and Stockholders’ Equity Current liabilities:
Accounts payable $ 30,057,000 43,928,000 Accrued expenses and other
current liabilities 60,343,000 65,034,000 Dividends payable
2,382,000 2,356,000 Contract liabilities 35,027,000 34,452,000
Current portion of long-term debt — 17,211,000 Current portion of
capital lease and other obligations 1,284,000 1,836,000 Interest
payable 640,000 499,000 Total current liabilities
129,733,000 165,316,000 Non-current portion of long-term debt, net
174,500,000 148,087,000 Non-current portion of capital lease and
other obligations 490,000 765,000 Income taxes payable 414,000
2,572,000 Deferred tax liability, net 13,521,000 10,927,000
Long-term contract liabilities 8,336,000 7,689,000 Other
liabilities 3,456,000 4,117,000 Total liabilities
330,450,000 339,473,000 Commitments and contingencies Stockholders’
equity: Preferred stock, par value $0.10 per share; shares
authorized and unissued 2,000,000 — —
Common stock, par value $0.10 per share;
authorized 100,000,000 shares;issued 38,950,547 shares and
38,860,571 shares at January 31, 2019and July 31, 2018,
respectively
3,895,000 3,886,000 Additional paid-in capital 539,273,000
538,453,000 Retained earnings 411,558,000 405,194,000
954,726,000 947,533,000 Less:
Treasury stock, at cost (15,033,317 shares
at January 31, 2019 and July 31, 2018)
(441,849,000 ) (441,849,000 ) Total stockholders’ equity
512,877,000 505,684,000 Total liabilities and
stockholders’ equity $ 843,327,000 845,157,000
COMTECH TELECOMMUNICATIONS
CORP.
AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures to GAAP Financial
Measures (Unaudited)
Use of Non-GAAP Financial Measures
In order to provide investors with additional information
regarding its financial results, this press release contains
"Non-GAAP financial measures" under the rules of the SEC. The
Company's Adjusted EBITDA is a Non-GAAP measure that represents
earnings (loss) before income taxes, interest (income) and other,
write-off of deferred financing costs, interest expense,
amortization of stock-based compensation, amortization of
intangibles, depreciation expense, estimated contract settlement
costs, acquisition plan expenses or strategic alternatives analysis
expenses, facility exit costs, settlement of intellectual property
litigation and other. The Company's definition of Adjusted EBITDA
may differ from the definition of EBITDA used by other companies
and therefore may not be comparable to similarly titled measures
used by other companies. Adjusted EBITDA is also a measure
frequently requested by the Company's investors and analysts. The
Company believes that investors and analysts may use Adjusted
EBITDA, along with other information contained in its SEC filings,
in assessing the Company's performance and comparability of its
results with other companies. The Company's Non-GAAP measures for
consolidated operating income, net income and net income per
diluted share reflect the GAAP measures as reported, adjusted for
certain items as discussed below. These Non-GAAP financial measures
have limitations as an analytical tool as they exclude the
financial impact of transactions necessary to conduct the Company’s
business, such as the granting of equity compensation awards, and
are not intended to be an alternative to financial measures
prepared in accordance with GAAP. These measures are adjusted as
described in the reconciliation of GAAP to Non-GAAP in the below
tables, but these adjustments should not be construed as an
inference that all of these adjustments or costs are unusual,
infrequent or non-recurring. Non-GAAP financial measures should be
considered in addition to, and not as a substitute for or superior
to, financial measures determined in accordance with GAAP.
Investors are advised to carefully review the GAAP financial
results that are disclosed in the Company’s SEC filings. The
Company has not quantitatively reconciled its fiscal 2019 Adjusted
EBITDA target to the most directly comparable GAAP measure because
items such as stock-based compensation, adjustments to the
provision for income taxes, amortization of intangibles and
interest expense, which are specific items that impact these
measures, have not yet occurred, are out of the Company's control,
or cannot be predicted. For example, quantification of stock-based
compensation expense requires inputs such as the number of shares
granted and market price that are not currently ascertainable.
Accordingly, reconciliations to the Non-GAAP forward looking
metrics are not available without unreasonable effort and such
unavailable reconciling items could significantly impact the
Company's financial results.
Three months ended
Six months ended Fiscal January 31, January 31, Year 2019
2018 2019 2018 2018
Reconciliation of GAAP Net Income to
Adjusted EBITDA: Net income $ 7,826,000 15,761,000 $ 11,294,000
14,101,000 $ 29,769,000 Provision for (benefit from) income taxes
2,371,000 (13,349,000 ) 244,000 (14,094,000 ) (5,143,000 ) Interest
(income) and other (51,000 ) (48,000 ) 15,000 (9,000 ) 254,000
Write-off of deferred financing costs — — 3,217,000 — — Interest
expense 2,267,000 2,519,000 4,936,000 5,107,000 10,195,000
Amortization of stock-based compensation 1,191,000 1,080,000
2,237,000 1,827,000 8,569,000 Amortization of intangibles 4,288,000
5,268,000 8,577,000 10,537,000 21,075,000 Depreciation 2,849,000
3,317,000 5,700,000 6,663,000 13,655,000 Estimated contract
settlement costs 3,886,000 — 3,886,000 — — Settlement of
intellectual property litigation (3,204,000 ) — (3,204,000 ) — —
Acquisition plan expenses 1,778,000 — 2,908,000 — — Facility exit
costs — — 1,373,000 — — Adjusted
EBITDA $ 23,201,000 14,548,000 $ 41,183,000
24,132,000 $ 78,374,000
In addition, a reconciliation of Comtech's GAAP consolidated
operating income, net income and net income per diluted share for
the three and six months ended January 31, 2019 to the
corresponding non-GAAP measures is shown in the table below:
January 31, 2019 Three months ended Six
months ended
OperatingIncome
Net Income
Net Incomeper DilutedShare*
OperatingIncome
Net Income
Net Incomeper DilutedShare*
Reconciliation of GAAP to Non-GAAP Earnings: GAAP measures,
as reported $ 12,413,000 $ 7,826,000 $ 0.32 $ 19,706,000 $
11,294,000 $ 0.47 Estimated contract settlement costs 3,886,000
2,992,000 0.12 3,886,000 2,992,000 0.12 Settlement of intellectual
property litigation (3,204,000 ) (2,467,000 ) (0.10 ) (3,204,000 )
(2,467,000 ) (0.10 ) Acquisition plan expenses 1,778,000 1,369,000
0.06 2,908,000 2,239,000 0.09 Facility exit costs — — — 1,373,000
1,057,000 0.04 Write-off of deferred financing costs — — — —
2,477,000 0.10 Net discrete tax benefit — — —
— (2,432,000 ) (0.10 ) Non-GAAP measures $ 14,873,000
$ 9,720,000 $ 0.40 $ 24,669,000 $ 15,160,000
$ 0.63
* Per share amounts may not foot due to rounding.
ECMTL
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version on businesswire.com: https://www.businesswire.com/news/home/20190306005792/en/
Media:Michael D. Porcelain, Senior Vice President and
Chief Operating Officer(631) 962-7000Info@comtechtel.com
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