Comtech Telecommunications Corp. Announces Results for Its Fiscal 2020 Second Quarter and Updates Fiscal 2020 Guidance
Fiscal 2020 Second Quarter Highlights
-
Net sales for the second quarter of fiscal 2020 were
$161.7 million .
-
Bookings during the second quarter of fiscal 2020 were
$151.6 million , with a company-wide book-to-bill ratio of 0.94. Backlog as ofJanuary 31, 2020 was$638.3 million . When addingComtech's backlog and the total unfunded value of certain multi-year contracts thatComtech has received and for which it expects future orders, its revenue visibility approximates$1.0 billion .
-
During the second quarter,
Comtech was awarded several large contracts, including: a 10-year,$211.0 million IDIQ contract to provide next generation troposcatter systems for end use by theU.S. Marine Corps , with initial funding received to-date of$13.4 million ; a multi-year contract extension totaling an estimated$14.2 million to provide enhanced 911 services to a tier oneU.S. wireless telecommunications carrier; a contract valued at more than$8.8 million for Ka-band solid-state amplifiers to be used in an in-flight connectivity satcom application; and a contract worth$6.6 million to upgrade a next generation 911 system for aNew England state.
-
On a GAAP basis, second quarter fiscal 2020 operating income was
$6.2 million , net income was$3.5 million and net income per diluted share ("EPS") was$0.14 . During the second quarter,Comtech's operating income was impacted by$6.0 million of acquisition plan expenses and a$0.3 million benefit from the reversal of certain estimated contract settlement costs. As shown in the table below, excluding those acquisition plan expenses, the benefit from the reversal of certain estimated contract settlement costs and the net discrete tax expense during the quarter, Non-GAAP EPS was$0.32 . Non-GAAP EPS is a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure below.
-
Adjusted EBITDA for the second quarter of fiscal 2020 was
$21.2 million , or 13.1% of consolidated net sales. Adjusted EBITDA is a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure and is more fully defined below.
-
In late
January 2020 ,Comtech announced the completion of its acquisition ofCGC Technology Limited ("CGC") for approximately$23.7 million . CGC is a leading provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment around the world. With significant growth in low Earth orbit ("LEO") and medium Earth orbit ("MEO") satellite constellations expected, the acquisition adds another growth dynamic toComtech and brings established relationships with several top-tier European aerospace companies and other government entities.
-
In
January 2020 ,Comtech announced its highly strategic acquisition of Gilat Satellite Networks Ltd. ("Gilat") in a cash and stock transaction, resulting in an enterprise value of approximately$532.5 million . Each Gilat ordinary share will be converted into the right to receive consideration of$7.18 in cash, without interest, plus 0.08425 of a share ofComtech common stock, with cash payable in lieu of fractional shares. Gilat is a worldwide leader in satellite networking technology, solutions and services, with market leading positions in the satellite ground station and in-flight connectivity solutions markets and deep expertise in operating large network infrastructures. The transaction is subject to customary closing conditions including, among others, the approval of Gilat’s shareholders and the expiration of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976.
In commenting on Comtech’s performance for the second quarter of fiscal 2020,
Updated 2020 Fiscal Year Financial Targets
Comtech’s Updated 2020 Fiscal Year Financial Targets reflect its assumption that the sudden and unexpected deterioration in macroeconomic and business conditions caused by the coronavirus are temporary and that conditions will significantly improve during the second half of Comtech’s fiscal 2020. To-date, the largest business impact of the coronavirus has been felt in
-
Comtech's consolidated net sales target is now approximately$712.0 million , as compared to the prior range of$712.0 million to$732.0 million .
-
Comtech's Adjusted EBITDA goal is now$99.0 million as compared to the prior range of$99.0 million to$103.0 million .Comtech's Adjusted EBITDA goal reflects a target of approximately 14.0% of its target consolidated net sales.
-
Despite incurring
$8.4 million of acquisition plan expenses and a$32,000 benefit related to the reversal of certain estimated contract settlement costs in the first half of fiscal 2020, as well as an additional$3.6 million of such costs expected during the third quarter of fiscal 2020, GAAP operating income, as a percentage of consolidated net sales, is expected to approximate 6.0%. Excluding such net expenses, operating income, as a percentage of fiscal 2020 consolidated net sales, is expected to approximate 7.5%.
-
Comtech's interest expense rate (including amortization of deferred financing costs) is now expected to approximate 4.5% and its total interest expense is now expected to approximate$7.0 million .Comtech's current and fiscal 2020 expected cash borrowing rate is approximately 3.5% to 3.75%.
- Comtech’s effective income tax rate (excluding discrete tax items) for each of the remaining quarters of fiscal 2020 is expected to approximate 23.0%.
-
Comtech’s updated GAAP EPS target for fiscal 2020 is
$1.08 . This GAAP EPS metric reflects all actual and expected third quarter fiscal 2020 acquisition plan expenses, the benefit from the reversal of certain estimated contract settlement costs and net discrete tax items. Excluding actual and expected third quarter fiscal 2020 acquisition plan expenses, the benefit from the reversal of certain estimated contract settlement costs and net discrete tax items, Non-GAAP EPS is now expected to approximate$1.42 , as compared toComtech's previous targeted range of$1.42 to$1.56 .
-
Given Comtech’s current expectations of the economic fallout resulting from the coronavirus,
Comtech expects its third quarter consolidated net sales to range from$150.0 million to$155.0 million , with Adjusted EBITDA ranging from$16.0 million to$18.0 million , before significantly rebounding in the fourth quarter of fiscal 2020. As such, Comtech’s fourth quarter of fiscal 2020 is still expected to be the peak quarter - by far - for its consolidated net sales, GAAP operating income, GAAP net income and Adjusted EBITDA. Comtech’s updated fiscal 2020 financial targets reflect several large items expected to be shipped during the second half of fiscal 2020, the timing of which could shift into fiscal 2021.
The aforementioned fiscal 2020 financial targets do not include the impact of the pending acquisitions of UHP and Gilat or the impact of any other expense
Additional information about Comtech’s second quarter financial results and Business Outlook for Fiscal 2020 is set forth in
Conference Call
The Company has scheduled an investor conference call for
About
Additional Information and Where to Find It
This filing is being made in respect of a proposed business combination involving
This document is not a substitute for any prospectus, proxy statement or any other document that
You may obtain copies of all documents filed with the
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 acquisitions of UHP and Gilat may not be consummated for reasons including that the conditions precedent to the completion of these acquisitions may not be satisfied or the occurrence of any event, change or circumstance could give rise to the termination of the agreements; the risk that the regulatory approvals will not be obtained; the possibility that the expected synergies from recent or pending acquisitions will not be fully realized, or will not be realized within the anticipated time periods; the risk that the acquired businesses and pending acquisitions will not be integrated with
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AND SUBSIDIARIES |
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Condensed Consolidated Statements of Operations |
||||||||||||||
(Unaudited) |
||||||||||||||
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Three months ended |
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Six months ended |
|||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||
|
|
|
|
|
|
|
|
|||||||
Net sales |
$ |
161,654,000 |
|
|
164,133,000 |
|
|
$ |
331,921,000 |
|
|
$ |
324,977,000 |
|
Cost of sales |
101,052,000 |
|
|
102,888,000 |
|
|
207,752,000 |
|
|
205,963,000 |
|
|||
Gross profit |
60,602,000 |
|
|
61,245,000 |
|
|
124,169,000 |
|
|
119,014,000 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Expenses: |
|
|
|
|
|
|
|
|||||||
Selling, general and administrative |
29,374,000 |
|
|
31,987,000 |
|
|
61,225,000 |
|
|
63,834,000 |
|
|||
Research and development |
13,740,000 |
|
|
13,983,000 |
|
|
28,601,000 |
|
|
27,193,000 |
|
|||
Amortization of intangibles |
5,229,000 |
|
|
4,288,000 |
|
|
10,435,000 |
|
|
8,577,000 |
|
|||
Settlement of intellectual property litigation |
— |
|
|
(3,204,000 |
) |
|
— |
|
|
(3,204,000 |
) |
|||
Acquisition plan expenses |
6,025,000 |
|
|
1,778,000 |
|
|
8,414,000 |
|
|
2,908,000 |
|
|||
|
54,368,000 |
|
|
48,832,000 |
|
|
108,675,000 |
|
|
99,308,000 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Operating income |
6,234,000 |
|
|
12,413,000 |
|
|
15,494,000 |
|
|
19,706,000 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Other expenses: |
|
|
|
|
|
|
|
|||||||
Interest expense |
1,616,000 |
|
|
2,267,000 |
|
|
3,420,000 |
|
|
4,936,000 |
|
|||
Write-off of deferred financing costs |
— |
|
|
— |
|
|
— |
|
|
3,217,000 |
|
|||
Interest (income) and other |
6,000 |
|
|
(51,000 |
) |
|
(71,000 |
) |
|
15,000 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Income before provision for income taxes |
4,612,000 |
|
|
10,197,000 |
|
|
12,145,000 |
|
|
11,538,000 |
|
|||
Provision for income taxes |
1,117,000 |
|
|
2,371,000 |
|
|
2,262,000 |
|
|
244,000 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Net income |
$ |
3,495,000 |
|
|
7,826,000 |
|
|
$ |
9,883,000 |
|
|
$ |
11,294,000 |
|
|
|
|
|
|
|
|
|
|||||||
Net income per share: |
|
|
|
|
|
|
|
|||||||
Basic |
$ |
0.14 |
|
|
0.33 |
|
|
$ |
0.40 |
|
|
$ |
0.47 |
|
Diluted |
$ |
0.14 |
|
|
0.32 |
|
|
$ |
0.40 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|||||||
Weighted average number of common shares outstanding – basic |
24,659,000 |
|
|
24,034,000 |
|
|
24,607,000 |
|
|
24,017,000 |
|
|||
|
|
|
|
|
|
|
|
|||||||
Weighted average number of common and common equivalent shares outstanding – diluted |
25,058,000 |
|
|
24,168,000 |
|
|
24,904,000 |
|
|
24,245,000 |
|
|
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AND SUBSIDIARIES |
||||||
Condensed Consolidated Balance Sheets |
||||||
|
|
|
|
|||
|
(Unaudited) |
|
(Audited) |
|||
Assets |
|
|
|
|||
Current assets: |
|
|
|
|||
Cash and cash equivalents |
$ |
46,471,000 |
|
|
45,576,000 |
|
Accounts receivable, net |
147,983,000 |
|
|
145,032,000 |
|
|
Inventories, net |
74,064,000 |
|
|
74,839,000 |
|
|
Prepaid expenses and other current assets |
21,052,000 |
|
|
14,867,000 |
|
|
Total current assets |
289,570,000 |
|
|
280,314,000 |
|
|
Property, plant and equipment, net |
27,390,000 |
|
|
28,026,000 |
|
|
Operating lease right-of-use assets, net |
33,062,000 |
|
|
— |
|
|
|
328,476,000 |
|
|
310,489,000 |
|
|
Intangibles with finite lives, net |
264,255,000 |
|
|
261,890,000 |
|
|
Deferred financing costs, net |
2,759,000 |
|
|
3,128,000 |
|
|
Other assets, net |
4,430,000 |
|
|
3,864,000 |
|
|
Total assets |
$ |
949,942,000 |
|
|
887,711,000 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|||
Current liabilities: |
|
|
|
|||
Accounts payable |
$ |
27,250,000 |
|
|
24,330,000 |
|
Accrued expenses and other current liabilities |
84,511,000 |
|
|
78,584,000 |
|
|
Operating lease liabilities, current |
9,259,000 |
|
|
— |
|
|
Finance lease and other obligations, current |
464,000 |
|
|
757,000 |
|
|
Dividends payable |
2,432,000 |
|
|
2,406,000 |
|
|
Contract liabilities |
38,929,000 |
|
|
38,682,000 |
|
|
Interest payable |
325,000 |
|
|
588,000 |
|
|
Total current liabilities |
163,170,000 |
|
|
145,347,000 |
|
|
Non-current portion of long-term debt |
158,000,000 |
|
|
165,000,000 |
|
|
Operating lease liabilities, non-current |
26,431,000 |
|
|
— |
|
|
Income taxes payable |
2,874,000 |
|
|
325,000 |
|
|
Deferred tax liability, net |
18,758,000 |
|
|
12,481,000 |
|
|
Long-term contract liabilities |
12,458,000 |
|
|
10,654,000 |
|
|
Other liabilities |
17,048,000 |
|
|
18,822,000 |
|
|
Total liabilities |
398,739,000 |
|
|
352,629,000 |
|
|
Commitments and contingencies |
|
|
|
|||
Stockholders’ equity: |
|
|
|
|||
Preferred stock, par value |
— |
|
|
— |
|
|
Common stock, par value |
3,975,000 |
|
|
3,928,000 |
|
|
Additional paid-in capital |
563,834,000 |
|
|
552,670,000 |
|
|
Retained earnings |
425,243,000 |
|
|
420,333,000 |
|
|
|
993,052,000 |
|
|
976,931,000 |
|
|
Less: |
|
|
|
|||
and |
(441,849,000 |
) |
|
(441,849,000 |
) |
|
Total stockholders’ equity |
551,203,000 |
|
|
535,082,000 |
|
|
Total liabilities and stockholders’ equity |
$ |
949,942,000 |
|
|
887,711,000 |
|
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 |
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|
|
|
|
|
Year |
||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2019 |
||||||||
Reconciliation of GAAP Net Income to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
||||||||
Net income |
$ |
3,495,000 |
|
|
7,826,000 |
|
|
$ |
9,883,000 |
|
|
11,294,000 |
|
|
$ |
25,041,000 |
|
Provision for income taxes |
1,117,000 |
|
|
2,371,000 |
|
|
2,262,000 |
|
|
244,000 |
|
|
3,869,000 |
|
|||
Interest (income) and other |
6,000 |
|
|
(51,000 |
) |
|
(71,000 |
) |
|
15,000 |
|
|
35,000 |
|
|||
Write-off of deferred financing costs |
— |
|
|
— |
|
|
— |
|
|
3,217,000 |
|
|
3,217,000 |
|
|||
Interest expense |
1,616,000 |
|
|
2,267,000 |
|
|
3,420,000 |
|
|
4,936,000 |
|
|
9,245,000 |
|
|||
Amortization of stock-based compensation |
1,238,000 |
|
|
1,191,000 |
|
|
2,117,000 |
|
|
2,237,000 |
|
|
11,427,000 |
|
|||
Amortization of intangibles |
5,229,000 |
|
|
4,288,000 |
|
|
10,435,000 |
|
|
8,577,000 |
|
|
18,320,000 |
|
|||
Depreciation |
2,721,000 |
|
|
2,849,000 |
|
|
5,372,000 |
|
|
5,700,000 |
|
|
11,927,000 |
|
|||
Estimated contract settlement costs |
(262,000 |
) |
|
3,886,000 |
|
|
(32,000 |
) |
|
3,886,000 |
|
|
6,351,000 |
|
|||
Settlement of intellectual property litigation |
— |
|
|
(3,204,000 |
) |
|
— |
|
|
(3,204,000 |
) |
|
(3,204,000 |
) |
|||
Acquisition plan expenses |
6,025,000 |
|
|
1,778,000 |
|
|
8,414,000 |
|
|
2,908,000 |
|
|
5,871,000 |
|
|||
Facility exit costs |
— |
|
|
— |
|
|
— |
|
|
1,373,000 |
|
|
1,373,000 |
|
|||
Adjusted EBITDA |
$ |
21,185,000 |
|
|
23,201,000 |
|
|
$ |
41,800,000 |
|
|
41,183,000 |
|
|
$ |
93,472,000 |
|
In addition, a reconciliation of
|
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|
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 |
$ |
6,234,000 |
|
|
$ |
3,495,000 |
|
|
$ |
0.14 |
|
|
$ |
15,494,000 |
|
|
$ |
9,883,000 |
|
|
$ |
0.40 |
|
Acquisition plan expenses |
6,025,000 |
|
|
4,639,000 |
|
|
0.19 |
|
|
8,414,000 |
|
|
6,479,000 |
|
|
0.26 |
|
||||||
Estimated contract settlement costs |
(262,000 |
) |
|
(202,000 |
) |
|
(0.01 |
) |
|
(32,000 |
) |
|
(25,000 |
) |
|
— |
|
||||||
Net discrete tax expense (benefit) |
— |
|
|
57,000 |
|
|
— |
|
|
— |
|
|
(531,000 |
) |
|
(0.02 |
) |
||||||
Non-GAAP measures |
$ |
11,997,000 |
|
|
$ |
7,989,000 |
|
|
$ |
0.32 |
|
|
$ |
23,876,000 |
|
|
$ |
15,806,000 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
||||||||||||||||||||||
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Fiscal Year |
|
|
|
|
|
|
||||||||||||||||
|
2019 |
|
|
||||||||||||||||||||
|
Operating
|
|
Net Income |
|
Net Income
|
|
|
|
|
|
|
||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
GAAP measures, as reported |
$ |
41,407,000 |
|
|
$ |
25,041,000 |
|
|
$ |
1.03 |
|
|
|
|
|
|
|
||||||
Estimated contract settlement costs |
6,351,000 |
|
|
4,874,000 |
|
|
0.20 |
|
|
|
|
|
|
|
|||||||||
Settlement of intellectual property litigation |
(3,204,000 |
) |
|
(2,459,000 |
) |
|
(0.10 |
) |
|
|
|
|
|
|
|||||||||
Facility exit costs |
1,373,000 |
|
|
1,054,000 |
|
|
0.04 |
|
|
|
|
|
|
|
|||||||||
Acquisition plan expenses |
5,871,000 |
|
|
4,506,000 |
|
|
0.19 |
|
|
|
|
|
|
|
|||||||||
Write-off of deferred financing costs |
— |
|
|
2,469,000 |
|
|
0.10 |
|
|
|
|
|
|
|
|||||||||
Net discrete tax benefit |
— |
|
|
(2,875,000 |
) |
|
(0.12 |
) |
|
|
|
|
|
|
|||||||||
Non-GAAP measures |
$ |
51,798,000 |
|
|
$ |
32,610,000 |
|
|
$ |
1.34 |
|
|
|
|
|
|
|
* Per share amounts may not foot due to rounding.
ECMTL
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