Comtech Telecommunications Corp. Announces Results for Fiscal 2019 Second Quarter and Updates Its Fiscal 2019 Guidance
Fiscal 2019 Second Quarter Highlights
Net sales for the second quarter of fiscal 2019 were
$164.1 millionas compared to the $133.7 millionachieved 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, 2019was $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 Comtechhas received is substantially higher. Comtechreceived a number of strategic contracts and orders, including: (i) $11.9 millionof orders for cyber security training solutions; (ii) $11.6 millionin orders from the U.S. Navyto purchase Comtech’s SLM-5650B satellite modems, upgrade kits and related services; (iii) $6.9 millionof orders to provide ongoing sustainment services to the U.S. Armyfor the AN/TSC-198A SNAP VSATs; (iv) $5.2 millionof orders from the U.S. Armyto supply Manpack Satellite Terminals, networking equipment and other advanced VSAT products; (v) a two-year agreement worth $3.6 millionfrom a Fortune 500 company to provide location-based services (“LBS”) platforms and applications; (vi) $3.0 millionof orders for antenna feeds to be incorporated into portable and inflatable 1.2-meter and 2.4-meter SATCOMterminals; (vii) a $2.5 millionorder from a top-tier telecommunications service provider for various LBS platforms and applications; (viii) a $1.7 millionorder for satellite block up converters ("BUCs"); and (ix) $1.1 millionof incremental funding from the U.S. Armyto support Blue Force Tracking-1 activities.
GAAP operating income of
$12.4 million, GAAP net income of $7.8 millionand GAAP earnings per diluted share ("EPS") of $0.32reflects the impact of several steps taken by Comtechto 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 millionof 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 millionof estimated contract settlement costs related to an ongoing repositioning of Comtech'senterprise technology product solutions that it initiated during the quarter; and (iv) a benefit of $3.2 millionrelated 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 millionand earnings per diluted share would have been $0.40.
Adjusted EBITDA for the second quarter of fiscal 2019 was
$23.2 millionas compared to the $14.5 millionachieved 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
In commenting on Comtech’s performance for the second quarter of fiscal
Updated 2019 Fiscal Year Financial Targets
Comtechis increasing its fiscal 2019 consolidated net sales goal to a range of approximately $645.0 million to $660.0 millionand is increasing its Adjusted EBITDA goal to a range of approximately $85.0 million to $89.0 millionas compared to a prior goal for net sales of between $625.0 million to $640.0 millionand 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 Comtechcan 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'supdated GAAP EPS target for fiscal 2019 is now within a range of $0.86 to $0.98as compared to the prior range of $0.95to $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 millionor $0.08per 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 millionor $0.02per 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 millionor $0.03per GAAP EPS; and (iv) $1.0 millionor $0.03per 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,
Comtechnow 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 millionand $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,
Comtechanticipates consolidated GAAP operating income, in dollars, to be higher than the $35.1 millionachieved in fiscal 2018 and, as a percentage of consolidated net sales, to be similar to the 6.2% it achieved in fiscal 2018. Comtech'sestimated 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 millionof 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'sQuarterly Report on Form 10-Q filed with the SECtoday and Comtech’s second quarter investor presentation which is located on its website at www.comtechtel.com.
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
COMTECH TELECOMMUNICATIONS CORP.
|Three months ended January 31,||Six months ended January 31,|
|Cost of sales||102,888,000||82,930,000||205,963,000||156,783,000|
|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||—|
|Other expenses (income):|
|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 per share:|
Weighted average number of common shares
Weighted average number of common and common
COMTECH TELECOMMUNICATIONS CORP.
|January 31, 2019||July 31, 2018|
|Cash and cash equivalents||$||45,997,000||43,484,000|
|Accounts receivable, net||138,920,000||147,439,000|
|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|
|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|
|Liabilities and Stockholders’ Equity|
|Accrued expenses and other current liabilities||60,343,000||65,034,000|
|Current portion of long-term debt||—||17,211,000|
|Current portion of capital lease and other obligations||1,284,000||1,836,000|
|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|
|Commitments and contingencies|
|Preferred stock, par value $0.10 per share; shares authorized and unissued 2,000,000||—||—|
Common stock, par value $0.10 per share; authorized 100,000,000
|Additional paid-in capital||539,273,000||538,453,000|
Treasury stock, at cost (15,033,317 shares at January 31, 2019 and July 31, 2018)
|Total stockholders’ equity||512,877,000||505,684,000|
|Total liabilities and stockholders’ equity||$||843,327,000||845,157,000|
COMTECH TELECOMMUNICATIONS CORP.
|Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures|
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
|Three months ended||Six months ended||Fiscal|
|January 31,||January 31,||Year|
|Reconciliation of GAAP Net Income to Adjusted EBITDA:|
|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||—||—|
|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|
|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||—||—|
In addition, a reconciliation of
|January 31, 2019|
|Three months ended||Six months ended|
|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||)|
* Per share amounts may not foot due to rounding.
Michael D. Porcelain, Senior Vice President and Chief Operating Officer