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Comtech Telecommunications Corp. Announces Record Results for Fiscal 2004 Fourth Quarter and Full Year

September 22, 2004 at 8:00 AM EDT

MELVILLE, N.Y., Sep 22, 2004 (BUSINESS WIRE) -- Comtech Telecommunications Corp. (NASDAQ: CMTL) today reported record results for the fourth quarter and fiscal year ended July 31, 2004. Net sales for the fourth quarter of fiscal 2004 were a record $59.1 million, compared to $51.7 million in fiscal 2003.

Fourth quarter fiscal 2004 net income of $6.1 million, or $0.40 per diluted share, was also a new record and a significant increase over the fourth quarter fiscal 2003 net income of $3.6 million, or $0.27 per diluted share. The fourth quarter of fiscal 2004 included a charge of $0.9 million for acquired in-process research and development in connection with the acquisition of certain assets and liabilities of Memotec, Inc. in May 2004. Excluding the tax-effected impact of the in-process research and development charge, fourth quarter net income for fiscal 2004 was $6.7 million, or $0.44 per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA), after adjusting for the in-process research and development charge, were $12.0 million for the fourth quarter of fiscal 2004 versus $7.6 million for the same period in fiscal 2003. In addition, cash flows from operating activities for the fourth quarter of fiscal 2004 were $18.0 million, reversing the trend that we experienced earlier in the year associated with a build-up of accounts receivable. Cash flows from operating activities for the fourth quarter of fiscal 2003 were $7.6 million.

Net sales for fiscal 2004 soared past the $200 million mark for the first time in Comtech's history to $223.4 million as compared to $174.0 million in fiscal 2003, representing a 28% increase. This was on top of the 46% increase in sales from fiscal 2002 to fiscal 2003.

Fiscal 2004 net income of $21.8 million, or $1.42 per diluted share, was significantly higher than the fiscal 2003 net income of $9.7 million, or $0.80 per diluted share. The record level of earnings per share represents a 78% increase over the previous high set in fiscal 2003. Excluding the tax-effected impact of the in-process research and development charge, fiscal 2004 net income was $22.5 million, or $1.46 per share.

EBITDA, after adjusting for the in-process research and development charge, was $40.1 million for fiscal 2004 versus $23.1 million for fiscal 2003. Cash flows from operating activities for fiscal 2004 were $24.3 million, slightly lower than the $26.8 million in fiscal 2003. The decrease in fiscal 2004 was primarily the result of a $16.5 million increase in accounts receivable relating to the higher sales and the anticipated build-up of receivables on a contract in our telecommunications transmission segment.

The record performance in the fourth quarter of fiscal 2004 was driven by continued strength in demand for our products, particularly in the telecommunications transmission and mobile data communications segments. In addition, the fourth quarter of fiscal 2004 was favorably impacted by a $1.7 million positive gross margin adjustment in our mobile data communications segment relating to increased funding and improved operating efficiencies on our Movement Tracking System (MTS) contract with the U.S. Army. Although the cumulative adjustment, which relates to activity in prior periods, was recorded in the fourth quarter of fiscal 2004, the positive developments driving the margin reassessment are also expected to result in improved margins on this contract going forward. Our RF microwave amplifier segment reported a loss of $0.4 million for the fourth quarter of fiscal 2004 primarily due to an estimated contract loss which is not expected to recur. Excluding the impact of the in-process research and development charge, Memotec operated at approximately break-even for the fourth quarter.

The significant improvement in profitability and operating margin during fiscal 2004 was driven by strong demand for our products, particularly in the telecommunications transmission and mobile data communications segments, as well as increased operating efficiencies associated with the increase in sales and leveraging of our in-house manufacturing capabilities. Fiscal 2004 net income was also favorably impacted by positive gross margin adjustments on certain contracts in our telecommunications transmission and mobile data communications segments. The cumulative impact of the adjustments recorded in fiscal 2004 that related to activity on these contracts in prior years was $1.9 million.

Backlog as of July 31, 2004 was $83.5 million compared to $100.1 million a year ago. Subsequent to July 31, 2004, we received a $77.0 million contract which will increase our backlog to nearly $160 million.

In commenting on the Company's performance during the fourth quarter of fiscal 2004, Fred Kornberg, President and Chief Executive Officer of Comtech Telecommunications Corp., said, "The fourth quarter of fiscal 2004 was another outstanding showing for Comtech. We posted record levels of sales, operating profit, net income and earnings per share as we continue to benefit from strong demand for our product offerings. In addition, we generated strong operating cash flow during the quarter."

Mr. Kornberg added, "The record fourth quarter was a fitting finale to fiscal 2004 which was a remarkable year for Comtech. We were able to post significant sales growth accompanied by dramatic operating efficiencies despite the fact that fiscal 2003 was itself a year of tremendous growth and profitability. In addition, during fiscal 2004 we raised $105 million through a convertible notes offering which provides us with flexibility to fund future growth both organically and through acquisition."

Mr. Kornberg concluded, "Most importantly, we remain optimistic across all three of our business segments for fiscal 2005. We believe fiscal 2005 is positioned to be another year of record sales and earnings."

Comtech Telecommunications Corp. designs, develops, produces and markets innovative products, systems and services for advanced communications solutions addressing commercial and government markets. The Company conducts its business through three complementary segments: telecommunications transmission, mobile data communications and RF microwave amplifiers. The Company offers specialized products, systems and services where it believes it has technological, engineering, systems design or other expertise that differentiate its product offerings.

The Company has scheduled an investor conference call for 11:30 AM (ET) on Wednesday, September 22, 2004. Investors and the public are invited to access a live webcast of the conference call from the news section of the Comtech web site at www.comtechtel.com. A replay of the webcast will be available at the same location for 30 days following the conference call. Alternatively, investors can access the conference call by dialing (800) 540-0559 (domestic), or (785) 832-1508 (international) and using the conference I.D. of "Comtech." A replay of the conference call will be available for seven days by dialing (402) 220-6983. In addition, an updated investor presentation, including earnings guidance, will be available on our web site shortly after the conference call.

Certain information in this press release contains forward-looking statements, including but not limited to, information relating to the future performance and financial condition of the Company, the plans and objectives of the Company's management and the Company's assumptions regarding such performance and plans that are forward-looking in nature and involve certain significant risks and uncertainties. Actual results could differ materially from such forward-looking information. The Company's Securities and Exchange Commission filings identify many such risks and uncertainties, which include the following:

    --  Our operating results being difficult to forecast and subject
        to volatility;

    --  Our inability to maintain our government business;

    --  Our inability to keep pace with technological changes;

    --  Our dependence on international sales;

    --  The impact of a domestic or foreign economic slow-down and
        reduction in telecommunications equipment and systems spending
        on the demand for our products, systems and services;

    --  Our mobile data communications business being in an early
        stage;

    --  Our backlog being subject to cancellation or modification;

    --  Our dependence on component availability, subcontractor
        availability and performance by key suppliers;

    --  Our fixed price contracts being subject to risk;

    --  The impact of adverse regulatory changes on our ability to
        sell products, systems and services;

    --  The impact of prevailing economic and political conditions on
        our businesses;

    --  Whether we can successfully integrate and assimilate the
        operations of acquired businesses;

    --  The impact of the loss of key technical or management
        personnel;

    --  The highly competitive nature of our markets;

    --  Our inability to protect our proprietary technology;

    --  Our operations being subject to environmental regulation;

    --  The impact of recently enacted and proposed changes in
        securities laws and regulations on our costs;

    --  The impact of terrorist attacks and threats, and government
        responses thereto, and threats of war on our businesses;

    --  Our inability to satisfy our debt obligations, including the
        recently issued convertible senior notes;

    --  The inability to effectuate a change in control of the Company
        due to provisions in its Corporate documents, stockholders'
        rights plan and Delaware law;

    --  Our stock price being volatile; and

    --  Our current intention not to declare or pay any cash
        dividends.
                   COMTECH TELECOMMUNICATIONS CORP.
                 Consolidated Statements of Operations

                        Three Months Ended       Fiscal Year Ended
                             July 31,                 July 31,
                      ----------------------- ------------------------
                         2004        2003         2004        2003
                        ------      ------       ------       -----

Net sales             $59,056,000 51,683,000  223,390,000 174,035,000
Costs of sales         33,726,000 33,676,000  135,858,000 114,317,000
                       ---------------------- ------------------------
        Gross profit   25,330,000 18,007,000   87,532,000  59,718,000
                       ---------------------- ------------------------

Operating expenses:
   Selling, general
    and administrative  9,863,000  8,075,000   36,016,000  28,045,000
   Research and
    development         4,709,000  3,502,000   15,907,000  12,828,000
   In-process research
    and development       940,000          -      940,000           -
   Amortization of
    intangibles           569,000    499,000    2,067,000   2,039,000
                       ---------------------- ------------------------
     Total operating
         expenses      16,081,000 12,076,000   54,930,000  42,912,000
                       ---------------------- ------------------------

Operating income        9,249,000  5,931,000   32,602,000  16,806,000
Other expenses
 (income):
    Interest expense      675,000    744,000    1,425,000   2,803,000
    Interest income      (378,000)   (88,000)    (921,000)   (275,000)
                       ---------------------- ------------------------

Income before
 provision for income
 taxes                  8,952,000  5,275,000   32,098,000  14,278,000
Provision for income
 taxes                  2,864,000  1,688,000   10,271,000   4,569,000
                       ---------------------- ------------------------
        Net income    $ 6,088,000  3,587,000   21,827,000   9,709,000
                       ====================== ========================

Basic income  per
 share                $      0.43       0.30         1.55        0.85
                       ====================== ========================
Diluted income per
 share                $      0.40       0.27         1.42        0.80
                       ====================== ========================

Weighted average
 number of common
 shares
 Outstanding - Basic   14,226,000 11,857,000   14,119,000  11,445,000
Potential dilutive
 common shares            978,000  1,302,000    1,261,000     748,000
                       ---------------------- ------------------------
Weighted average
 number of common and
 common equivalent
 shares outstanding
 assuming dilution -
 Diluted               15,204,000 13,159,000   15,380,000  12,193,000
                       ====================== ========================

                      Non-GAAP Financial Measures

EBITDA and the other non-GAAP operating measures presented below are
used by management in assessing the Company's operating results and
ability to meet debt service requirements. These non-GAAP measures are
frequently requested by the Company's investors and analysts. The
Company believes that investors and analysts may use these non-GAAP
measures, along with other information contained in its SEC filings,
in assessing the Company's operating results and ability to generate
cash flow and service debt.

                      Three Months Ended          Fiscal Year Ended
                           July 31,                    July 31,
                ------------------------------- ----------------------
                        2004            2003      2004         2003
                        ------          ----      -----        ------
Reconciliation of Non-
 GAAP Net Income to
    GAAP Net Income:
-----------------------

  Non-GAAP net income   $ 6,727,000  3,587,000   22,466,000  9,709,000
  In-process research
   and development
   charge, net of income
        taxes              (639,000)         -     (639,000)         -
                        ---------------------- -----------------------
    GAAP net income     $ 6,088,000  3,587,000   21,827,000  9,709,000
                        ====================== =======================

Reconciliation of
 Adjusted EBITDA to
    GAAP Net Income:
-----------------------

    Adjusted EBITDA    $11,965,000  7,572,000   40,056,000 23,064,000
    Net interest
     expense              (297,000)  (656,000)    (504,000)(2,528,000)
    Depreciation and
     amortization       (1,776,000)(1,641,000)  (6,514,000)(6,258,000)
    Income taxes        (2,864,000)(1,688,000) (10,271,000)(4,569,000)
    In-process research
     and development
     charge               (940,000)         -     (940,000)         -
                        ---------------------- -----------------------
    GAAP net income    $ 6,088,000  3,587,000   21,827,000  9,709,000
                        ====================== =======================

                   COMTECH TELECOMMUNICATIONS CORP.
                      Consolidated Balance Sheets

                                                     July 31,
                                            --------------------------
                Assets                              2004         2003
                                                    -----        -----
Current  assets:
   Cash and cash equivalents                $163,292,000   48,617,000
   Restricted cash                             4,054,000    4,288,000
   Accounts receivable, less allowance for
    doubtful accounts of $732,000 in
    2004 and $912,000 in 2003                 43,002,000   26,696,000
   Inventories, net                           39,758,000   34,048,000
   Prepaid expenses and other current
    assets                                     1,817,000    1,742,000
   Deferred tax asset - current                6,501,000    5,699,000
                                             ------------ ------------
               Total current assets          258,424,000  121,090,000

 Property, plant and equipment, net           14,652,000   12,328,000
Goodwill                                      18,721,000   17,726,000
Intangibles with definite lives, net of
 accumulated amortization of $6,787,000
 in 2004 and $4,720,000 in 2003               10,706,000   11,353,000
Deferred financing costs, net                  3,541,000            -
Other assets, net                                346,000      390,000
Deferred tax asset - non-current                       -    1,363,000
                                             ------------ ------------
                 Total assets               $306,390,000  164,250,000
                                             ============ ============

           Liabilities and Stockholders' Equity
Current liabilities:
      Current installments of capital lease
       obligations                          $    234,000      899,000
      Accounts payable                         9,566,000   11,527,000
      Accrued expenses and other current
       liabilities                            20,515,000   13,267,000
      Customer advances and deposits           7,290,000    2,491,000
      Deferred service revenue                13,716,000   11,160,000
      Interest payable                         1,073,000            -
      Income taxes payable                     4,812,000    6,945,000
                                             ------------ ------------
                 Total current liabilities    57,206,000   46,289,000

Convertible senior notes                     105,000,000            -
Capital lease obligations, less current
 installments                                    158,000      393,000
Deferred tax liability - non-current           1,628,000            -
                                             ------------ ------------
                 Total liabilities           163,992,000   46,682,000
Stockholders' equity:
    Preferred stock, par value $.10 per
     share; shares authorized and
      unissued 2,000,000                               -            -
    Common stock, par value $.10 per share;
     authorized 30,000,000 shares,
       issued 14,371,335 shares in 2004 and
        14,020,769 shares in 2003              1,437,000    1,402,000
    Additional paid-in capital               110,435,000  107,573,000
    Retained earnings                         30,711,000    8,884,000
                                             ------------ ------------
                                             142,583,000  117,859,000
    Less:
        Treasury stock (140,625 shares)         (185,000)    (185,000)
        Deferred compensation                          -     (106,000)
                                             ------------ ------------
                 Total stockholders' equity  142,398,000  117,568,000
                                             ------------ ------------

      Total liabilities and stockholders'
                     equity                 $306,390,000  164,250,000
                                             ============ ============

ECMTL

SOURCE: Comtech Telecommunications Corp.

Comtech Telecommunications Corp.
Fred Kornberg, 631/777-8900
Robert G. Rouse, 631/777-8900
info@comtechtel.com
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