MELVILLE, N.Y. –
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. |
|||||||||||||||
| 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 shares |
24,034,000 | 23,816,000 | 24,017,000 | 23,805,000 | |||||||||||
|
Weighted average number of common and common |
24,168,000 | 23,953,000 | 24,245,000 | 23,942,000 | |||||||||||
|
COMTECH TELECOMMUNICATIONS CORP. |
||||||||
| 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 |
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 |
(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 | ||||||||||||||||||||||||
|
Operating |
Net Income |
Net Income |
Operating |
Net Income |
Net Income |
||||||||||||||||||||
| 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
View source version on businesswire.com: https://www.businesswire.com/news/home/20190306005792/en/
Media:
Michael D. Porcelain, Senior Vice President and Chief
Operating Officer
(631) 962-7000
[email protected]
