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 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 thatComtech 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 theU.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 theU.S. Army for the AN/TSC-198A SNAP VSATs; (iv)$5.2 million of orders from theU.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-meterSATCOM 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 theU.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 byComtech 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 ofSolacom Technologies Inc. ("Solacom"), which was completed onFebruary 28, 2019 ; (ii) the incurrence of$3.9 million of estimated contract settlement costs related to an ongoing repositioning ofComtech'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,
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 andComtech 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 inComtech's Quarterly Report on Form 10-Q filed with theSEC today and Comtech’s second quarter investor presentation which is located on its website at www.comtechtel.com.
Conference Call
About
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. |
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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 |
|
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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; |
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
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
January 31, 2019 | |||||||||||||||||||||||||
Three months ended | Six months ended | ||||||||||||||||||||||||
Operating |
Net Income |
Net Income |
Operating |
Net Income |
Net Income |
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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/
Source:
Media:
Michael D. Porcelain, Senior Vice President and Chief
Operating Officer
(631) 962-7000
Info@comtechtel.com