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Comtech Telecommunications Corp. Announces Results for Fiscal 2018 Third Quarter and Updates Its Fiscal 2018 Guidance

June 6, 2018 at 4:14 PM EDT

MELVILLE, N.Y.--(BUSINESS WIRE)-- June 6, 2018-- Comtech Telecommunications Corp. (NASDAQ: CMTL) today reported its operating results for the third fiscal quarter ended April 30, 2018 and updated its fiscal 2018 guidance.

Fiscal 2018 Third Quarter Highlights

  • Net sales were $147.9 million.
  • Bookings were $164.3 million, with a book-to-bill ratio (a measure defined as bookings divided by net sales) of 1.11.
  • Backlog increased from the level reported as of the second quarter of fiscal 2018 and is a near record $583.7 million. This amount 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) a $59.0 million contract to provide the U.S. Navy with SLM-5650B satellite modems, upgrade kits and related services; (ii) $16.9 million of orders to provide ongoing sustainment services for the U.S. Army's "SNAP" mobile satellite communications program; (iii) $14.2 million of orders to supply the U.S. Army with advanced VSAT equipment; (iv) a $10.1 million multi-year contract to provide one of the largest wireless carriers in the U.S. with a hosted, advanced location services platform; (v) $8.5 million in contracts to supply Modular Transportable Transmission System troposcatter terminals to two international customers; and (vi) a $3.7 million contract modification from the Consortium Management Group to support the U.S. Army Project Manager Mission Command and the Blue Force Tracking-2 ("BFT-2") program to port additional waveforms onto the current BFT-2 transceivers.
  • GAAP operating income was $14.0 million and GAAP net income was $8.2 million, or $0.34 per diluted share.
  • Adjusted EBITDA was $23.5 million. 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 $21.4 million.
  • Cash dividends of $2.4 million were paid to common stockholders.
  • $44.2 million of cash and cash equivalents as of April 30, 2018.

In commenting on Comtech's performance during the third quarter of fiscal 2018 and Comtech's updated fiscal 2018 guidance, Fred Kornberg, President and Chief Executive Officer, stated, "Our results for the third quarter exceeded our expectations and our pipeline of opportunities remains strong. Based on our strong year-to-date performance and positive business momentum, we are increasing our fiscal 2018 operating income and Adjusted EBITDA targets, and expect fiscal 2018 to be a successful year. As we begin to look to fiscal 2019, we believe that we are firmly positioned for growth."

Updated 2018 Fiscal Year Financial Targets

  • Comtech is maintaining its revenue target of approximately $570.0 million to $585.0 million. Despite the absence of $6.7 million of BFT-1 intellectual property license fees that Comtech earned in fiscal 2017 supporting the U.S. Army's Blue Force Tracking Program, the mid-point of Comtech's fiscal 2018 revenue target range represents a year-over-year growth rate of close to 5.0%.
  • Comtech is increasing its Adjusted EBITDA target to a new range of $73.5 million to $76.5 million, as compared to a prior range of $72.0 million to $76.0 million. Despite the absence of the $6.7 million of BFT-1 intellectual property license fees, the mid-point of the new fiscal 2018 Adjusted EBITDA target range represents an annual growth rate of close to 6.0%. Adjusted EBITDA, as a percentage of net sales, is expected to be close to 13.0%.
  • From a timing perspective, Comtech's fourth quarter of fiscal 2018 is still expected to be the peak quarter for both net sales and Adjusted EBITDA, but its third quarter of fiscal 2018 is now expected to be the peak quarter of operating income. Comtech's operating income for the third quarter reflects the benefit of shipments of satellite earth station equipment to the U.S. Navy that were previously expected to occur in its fourth quarter of fiscal 2018. Comtech's fourth quarter net sales assumptions now reflect this and other changes in product mix (including lower expected sales of higher margin cyber training software solutions).
  • Comtech's fourth quarter net sales and Adjusted EBITDA are expected to be higher than the related amounts achieved in its third quarter of fiscal 2018 by approximately 15.0%. Comtech's GAAP operating income and Adjusted EBITDA, as a percentage of its consolidated fourth quarter fiscal 2018 net sales, are expected to approximate 6.0% and 15.0%, respectively.
  • Comtech's new estimated effective tax rate of 27.0% for fiscal 2018 reflects seven months of benefit related to Tax Reform. Although Comtech continues to perform an analysis of Tax Reform and its impact, Comtech's assessment is that its effective tax rate in fiscal 2019, before any discrete items, will now range from 23.5% to 25.0%. During the nine months ended April 30, 2018, Comtech recorded an estimated net discrete tax benefit of $14.1 million, primarily due to the remeasurement of deferred tax liabilities associated with non-deductible amortization related to intangible assets that was required as a result of Tax Reform.
  • Comtech is updating its GAAP diluted EPS target to a new range of $1.17 to $1.23, as compared to a prior range of $1.08 to $1.23. The new target range includes the benefit of $0.59 per diluted share primarily due to the remeasurement of deferred tax assets and liabilities as a result of Tax Reform. GAAP diluted EPS for Comtech's fourth quarter of fiscal 2018 is expected to approximate a range of $0.24 to $0.30 per diluted share.
  • If order flow remains strong and Comtech is able to achieve all of its fiscal 2018 business goals, it is possible that Comtech's fiscal 2018 consolidated net sales, GAAP diluted EPS and Adjusted EBITDA could be higher than its targeted amounts.

Additional information about Comtech's third quarter financial results and Business Outlook for Fiscal 2018 is more thoroughly described in Comtech's Form 10-Q filed with the SEC today and Comtech's third 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, June 7, 2018. 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) 876-9176 (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) 839-2434 or (402) 220-7211. 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 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 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; 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 and TeleCommunication Systems, Inc.'s ("TCS") legacy legal proceedings, customer claims for indemnification and other similar matters; risks associated with the Company's obligations under its Secured Credit Facility, as amended; 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 SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

     
 
Three months ended April 30, Nine months ended April 30,
2018   2017 2018   2017
 
Net sales $ 147,854,000 127,792,000 403,154,000 402,606,000
Cost of sales 85,418,000   75,331,000   242,201,000   244,833,000  
Gross profit 62,436,000   52,461,000   160,953,000   157,773,000  
 
Expenses:
Selling, general and administrative 30,410,000 25,923,000 86,100,000 89,596,000
Research and development 12,778,000 12,961,000 39,963,000 40,371,000
Amortization of intangibles 5,269,000 5,468,000 15,806,000 17,555,000
Settlement of intellectual property litigation   (2,041,000 )   (12,020,000 )
48,457,000   42,311,000   141,869,000   135,502,000  
 
Operating income 13,979,000 10,150,000 19,084,000 22,271,000
 
Other expenses (income):
Interest expense 2,500,000 2,761,000 7,607,000 8,938,000
Interest (income) and other 198,000   88,000   189,000   12,000  
 

Income before provision for (benefit from)
income taxes

11,281,000 7,301,000 11,288,000 13,321,000
Provision for (benefit from) income taxes 3,071,000   2,884,000   (11,023,000 ) 4,808,000  
 
Net income $ 8,210,000   4,417,000   22,311,000   8,513,000  
 
Net income per share:
Basic $ 0.34   0.19   0.94   0.36  
Diluted $ 0.34   0.19   0.93   0.36  
 

Weighted average number of common shares
outstanding - basic

23,834,000   23,449,000   23,819,000   23,420,000  
 

Weighted average number of common and
common equivalent shares outstanding - diluted

24,052,000   23,503,000   23,999,000   23,449,000  
 

Dividends declared per issued and outstanding
common share as of the applicable dividend
record date

$ 0.10   0.10   0.30   0.50  

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

   
April 30, 2018 July 31, 2017
(Unaudited) (Audited)
Assets

 

Current assets:
Cash and cash equivalents $ 44,173,000 41,844,000
Accounts receivable, net 127,267,000 124,962,000
Inventories, net 76,554,000 60,603,000
Prepaid expenses and other current assets 13,912,000   13,635,000  
Total current assets 261,906,000 241,044,000
Property, plant and equipment, net 30,240,000 32,847,000
Goodwill 290,633,000 290,633,000
Intangibles with finite lives, net 246,065,000 261,871,000
Deferred financing costs, net 2,420,000 3,065,000
Other assets, net 2,808,000   2,603,000  
Total assets $ 834,072,000   832,063,000  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 30,125,000 29,402,000
Accrued expenses and other current liabilities 66,258,000 68,610,000
Dividends payable 2,354,000 2,343,000
Customer advances and other 33,485,000 25,771,000
Current portion of long-term debt 17,211,000 15,494,000
Current portion of capital lease and other obligations 2,540,000 2,309,000
Interest payable 532,000   282,000  
Total current liabilities 152,505,000 144,211,000
Non-current portion of long-term debt, net 161,856,000 176,228,000
Non-current portion of capital lease and other obligations 993,000 1,771,000
Income taxes payable 2,592,000 2,515,000
Deferred tax liability, net 6,069,000 17,306,000
Customer advances and other, non-current 7,761,000 7,227,000
Other liabilities 4,512,000   2,655,000  
Total liabilities 336,288,000 351,913,000
Commitments and contingencies
Stockholders' equity:

Preferred stock, par value $.10 per share; shares authorized and unissued
2,000,000

Common stock, par value $.10 per share; authorized 100,000,000 shares;
issued 38,675,301 shares and 38,619,467 shares at April 30, 2018 and July
31, 2017, respectively

3,868,000 3,862,000
Additional paid-in capital 535,620,000 533,001,000
Retained earnings 400,145,000   385,136,000  
939,633,000 921,999,000
Less:

Treasury stock, at cost (15,033,317 shares at April 30, 2018
and July 31, 2017)

(441,849,000 ) (441,849,000 )
Total stockholders' equity 497,784,000   480,150,000  
Total liabilities and stockholders' equity $ 834,072,000   832,063,000  

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 expense, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, settlement of intellectual property litigation, acquisition plan expenses or strategic alternatives analysis expenses 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. 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 table, 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 2018 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 April 30,   Nine months ended April 30,     Fiscal Year
2018   2017 2018   2017 2017

Reconciliation of GAAP Net Income to
Adjusted EBITDA:

Net income $ 8,210,000 4,417,000 22,311,000 8,513,000 $ 15,827,000
Provision for (benefit from) income taxes 3,071,000 2,884,000 (11,023,000 ) 4,808,000 9,654,000
Interest (income) and other expense 198,000 88,000 189,000 12,000 (68,000 )
Interest expense 2,500,000 2,761,000 7,607,000 8,938,000 11,629,000
Amortization of stock-based compensation 1,104,000 991,000 2,931,000 2,980,000 8,506,000
Amortization of intangibles 5,269,000 5,468,000 15,806,000 17,555,000 22,823,000
Depreciation 3,170,000 3,532,000 9,833,000 10,849,000 14,354,000
Settlement of intellectual property litigation   (2,041,000 )   (12,020,000 ) (12,020,000 )
Adjusted EBITDA $ 23,522,000   18,100,000   47,654,000   41,635,000   $ 70,705,000  

ECMTL

Media:
Michael D. Porcelain, Senior Vice President and Chief Financial Officer
631-962-7103
Info@comtechtel.com

Source: Comtech Telecommunications Corp.

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