Comtech Telecommunications Corp. Announces Results for Its Fiscal 2020 Third Quarter and Provides Business and Acquisition Plan Updates
Fiscal 2020 Third Quarter Highlights
- Net sales for the third quarter of fiscal 2020 were
$135.1 million .
- Bookings during the third quarter of fiscal 2020 were
$137.5 million , with a company-wide book-to-bill ratio of 1.02. Backlog as ofApril 30, 2020 was$640.7 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 .
- On a GAAP basis, the Company reported an operating loss of
$3.1 million , a net loss of$4.0 million and a net loss per diluted share ("EPS") of$0.16 .Comtech's operating loss was impacted by$6.0 million of acquisition plan expenses and$0.5 million of estimated contract settlement costs. As shown in the table below, excluding acquisition plan expenses, estimated contract settlement costs and a net discrete tax expense of$0.7 million during the quarter, Non-GAAP net income and EPS were$1.2 million and$0.05 , respectively. 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 third quarter of fiscal 2020 was
$12.5 million , or 9.2% 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.
Comtech generated GAAP operating cash flows of$7.7 million during the quarter and had$50.6 million of cash and cash equivalents atApril 30, 2020 .
Business Update: Impact of COVID-19 and Q4 Fiscal 2020 Targets
- Comtech’s third quarter of fiscal 2020, running from
February 1 through April 30, 2020 , corresponded precisely with the period in which worldwide restrictions on business activities were in force due to the COVID-19 pandemic. As a result,Comtech experienced significant order delays and lower net sales. During the quarter, in response to lower levels of business activity,Comtech implemented a variety of cost saving measures, including reducing global headcount by approximately 10%, reducing salaries, suspending merit increases and eliminating certain discretionary expenses. Severance costs relating to these actions were not material and cost reduction efforts continue.
- Although
Comtech is deemed an essential business by theU.S. government, for the safety of its employees, customers, partners and suppliers, it has implemented remote working arrangements, curtailed most business travel, and established social distancing safeguards at its facilities.Comtech expects that such precautions will remain in effect for as long as government advisories recommend.
Other recent developments in
- Comtech’s Commercial Solutions segment achieved a book-to-bill ratio of 0.73. Its satellite ground station technologies product line, which has historically required significant in-person meetings to generate new business and finalize sales orders, has been most impacted by restrictions on business activities. With Comtech’s recent deployment of new video sales channel methods and the partial resumption of businesses activities in some places around the world,
Comtech believes this product line has started to slowly recover. Importantly,Comtech has been awarded multiple satellite ground station technology solution contracts to support severalU.S. Department of Defense (“DoD”) end customers, and has received initial funding for these critical projects that it expects will generate significant revenue for several years. In addition,Comtech believes that demand for its 911 public safety and location technology solutions remains strong and it is in the process of finalizing a number of large multi-year projects. During the quarter,Comtech was also awarded a multi-year contract valued at$9.1 million from aU.S. tier-one mobile network operator for 5G virtual mobile location-based technology solutions, including public safety applications. Additionally,Comtech also launched a new product line website highlighting its public safety and location-based solutions and secured several multi-year contracts valued at more than$15.0 million to deploy new call-handling solutions in the Midwest.
- Comtech’s Government Solutions segment achieved a book-to-bill ratio of 1.41. Although this segment has experienced order and shipment delays, demand for almost all of Comtech’s mission-critical technologies and high-performance transmission technologies remains strong. In particular, it continues to provide Very Small Aperture Terminal (“VSAT”) Satellite Communications Terminals to the
U.S. government as well as ongoing sustainment services for several critical programs, including the SNAP and BFT-1 programs. Also,Comtech continues to support theU.S. government’s cyber security posture and received large orders for its Joint Cyber Analysis Course (“JCAC”) training solutions. InJune 2020 ,Comtech announced COMET - the world’s smallest over-the-horizon microwave terminal and received an initial order for theU.S. Special Operations Command. It is also continuing to make significant efforts to win multi-year awards for several large new opportunities with theDoD . During the quarter,Comtech completed the integration ofCGC Technology Limited , a leading provider of high precision full motion fixed and mobile X/Y satellite tracking antennas based in theUnited Kingdom , into its Government Solutions segment and is now working with several top-tier European aerospace companies and other government entities to meet expected long-term growth in LEO and MEO satellite constellations.
- Although the COVID-19 pandemic is by no means over and a second wave of COVID-19 could again alter the business landscape,
Comtech believes that the pandemic’s worst impact on its business is largely behind it. Comtech’s long-term fundamentals remain strong asComtech continues to believe it is well-positioned for growth as business conditions meaningfully improve. Although it has ceased during the current environment to provide specific financial targets for fiscal 2020 and it remains difficult to predict the timing of customer awards and related shipments,Comtech does expect fiscal 2020 fourth quarter consolidated net sales, net income and Adjusted EBITDA to be somewhat better than the results it achieved during the third fiscal quarter.Comtech expects to incur acquisition plan expenses of approximately$3.5 million during the fourth quarter of fiscal 2020.
Comtech's ability to achieve improved results during the fourth quarter will depend, in large part, on timely deliveries and the receipt of, and its performance on, orders from its customers. Fourth quarter results will be negatively impacted if orders and/or deliveries are delayed, business conditions further deteriorate, orComtech's current or prospective customers materially postpone, reduce or even forgo purchases of its products and services. Other than for acquisition plan expenses,Comtech's fourth quarter fiscal 2020 business outlook does not include the impact of the pending acquisitions of UHP or Gilat, or the impact of any other expenseComtech may incur in order to achieve its strategic objectives.
In commenting on Comtech’s performance for the third quarter of fiscal 2020,
Business Update: Acquisition Plan
- In
June 2020 ,Comtech andUHP Networks, Inc. (“UHP”), a leading provider of innovative and disruptive satellite ground station technology solutions, agreed to amend the terms of the agreement for Comtech’s purchase of UHP, which was originally announced inNovember 2019 . Under the amended purchase agreement, the total aggregate purchase price has been reduced by approximately 24% from$50.0 million to$38.0 million (of which$5.0 million will be paid in cash, with the remainder in shares ofComtech common stock, cash, or a combination of both, asComtech may elect at the time of closing). The transaction is subject to customary closing conditions, including necessary regulatory approval to allowComtech to purchase UHP's sister company which is headquartered inMoscow .
- Comtech’s acquisition of Gilat Satellite Networks Ltd. ("Gilat") remains subject to certain conditions to closing, including regulatory approval in
Russia . InMay 2020 ,Comtech received notification from the Federal Antimonopoly Service of theRussian Federation that it was extending the review period for Comtech’s application pending a decision under the Foreign Investment Law to determine whether approval is required from the Chairman of theRussian Government Commission for Supervising Foreign Investments .
- During the third quarter of fiscal 2020,
Comtech closed an acquisition ofNG-911, Inc. , a pioneer of Next Generation 911 solutions for public safety agencies in the Midwest. The acquisition allowsComtech to cost-effectively expand sales of its industry leading Solacom Guardian call management solutions for public safety. The financial impact of the acquisition was not material.
Additional information about Comtech’s third quarter financial results and updated 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
In connection with the proposed business combination involving
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 Gilat and UHP 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
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
||||||||||
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Three months ended |
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Nine months ended |
||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||
|
|
|
|
|
|
|
|
||||||
Net sales |
$ |
135,121,000 |
|
|
170,448,000 |
|
|
$ |
467,042,000 |
|
|
495,425,000 |
|
Cost of sales |
82,120,000 |
|
|
106,032,000 |
|
|
289,872,000 |
|
|
311,995,000 |
|
||
Gross profit |
53,001,000 |
|
|
64,416,000 |
|
|
177,170,000 |
|
|
183,430,000 |
|
||
|
|
|
|
|
|
|
|
||||||
Expenses: |
|
|
|
|
|
|
|
||||||
Selling, general and administrative |
32,313,000 |
|
|
33,409,000 |
|
|
93,538,000 |
|
|
97,243,000 |
|
||
Research and development |
12,324,000 |
|
|
13,471,000 |
|
|
40,925,000 |
|
|
40,664,000 |
|
||
Amortization of intangibles |
5,517,000 |
|
|
4,536,000 |
|
|
15,952,000 |
|
|
13,113,000 |
|
||
Settlement of intellectual property litigation |
— |
|
|
— |
|
|
— |
|
|
(3,204,000 |
) |
||
Acquisition plan expenses |
5,983,000 |
|
|
1,704,000 |
|
|
14,397,000 |
|
|
4,612,000 |
|
||
|
56,137,000 |
|
|
53,120,000 |
|
|
164,812,000 |
|
|
152,428,000 |
|
||
|
|
|
|
|
|
|
|
||||||
Operating (loss) income |
(3,136,000 |
) |
|
11,296,000 |
|
|
12,358,000 |
|
|
31,002,000 |
|
||
|
|
|
|
|
|
|
|
||||||
Other expenses: |
|
|
|
|
|
|
|
||||||
Interest expense |
1,504,000 |
|
|
2,159,000 |
|
|
4,924,000 |
|
|
7,095,000 |
|
||
Write-off of deferred financing costs |
— |
|
|
— |
|
|
— |
|
|
3,217,000 |
|
||
Interest (income) and other |
108,000 |
|
|
(22,000 |
) |
|
37,000 |
|
|
(7,000 |
) |
||
|
|
|
|
|
|
|
|
||||||
(Loss) income before (benefit from) provision for income taxes |
(4,748,000 |
) |
|
9,159,000 |
|
|
7,397,000 |
|
|
20,697,000 |
|
||
(Benefit from) provision for income taxes |
(759,000 |
) |
|
1,547,000 |
|
|
1,503,000 |
|
|
1,791,000 |
|
||
|
|
|
|
|
|
|
|
||||||
Net (loss) income |
$ |
(3,989,000 |
) |
|
7,612,000 |
|
|
$ |
5,894,000 |
|
|
18,906,000 |
|
|
|
|
|
|
|
|
|
||||||
Net (loss) income per share: |
|
|
|
|
|
|
|
||||||
Basic |
$ |
(0.16 |
) |
|
0.31 |
|
|
$ |
0.24 |
|
|
0.79 |
|
Diluted |
$ |
(0.16 |
) |
|
0.31 |
|
|
$ |
0.24 |
|
|
0.78 |
|
|
|
|
|
|
|
|
|
||||||
Weighted average number of common shares outstanding – basic |
24,982,000 |
|
|
24,192,000 |
|
|
24,730,000 |
|
|
24,074,000 |
|
||
|
|
|
|
|
|
|
|
||||||
Weighted average number of common and common equivalent shares outstanding – diluted |
24,982,000 |
|
|
24,330,000 |
|
|
24,892,000 |
|
|
24,263,000 |
|
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
|
|
|||
|
(Unaudited) |
|
(Audited) |
|||
Assets |
|
|||||
Current assets: |
|
|
|
|||
Cash and cash equivalents |
$ |
50,634,000 |
|
|
45,576,000 |
|
Accounts receivable, net |
137,887,000 |
|
|
145,032,000 |
|
|
Inventories, net |
79,423,000 |
|
|
74,839,000 |
|
|
Prepaid expenses and other current assets |
22,691,000 |
|
|
14,867,000 |
|
|
Total current assets |
290,635,000 |
|
|
280,314,000 |
|
|
Property, plant and equipment, net |
27,149,000 |
|
|
28,026,000 |
|
|
Operating lease right-of-use assets, net |
31,942,000 |
|
|
— |
|
|
|
335,477,000 |
|
|
310,489,000 |
|
|
Intangibles with finite lives, net |
260,162,000 |
|
|
261,890,000 |
|
|
Deferred financing costs, net |
2,575,000 |
|
|
3,128,000 |
|
|
Other assets, net |
3,792,000 |
|
|
3,864,000 |
|
|
Total assets |
$ |
951,732,000 |
|
|
887,711,000 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|||
Current liabilities: |
|
|
|
|||
Accounts payable |
$ |
32,942,000 |
|
|
24,330,000 |
|
Accrued expenses and other current liabilities |
83,561,000 |
|
|
78,584,000 |
|
|
Operating lease liabilities, current |
8,480,000 |
|
|
— |
|
|
Finance lease and other obligations, current |
— |
|
|
757,000 |
|
|
Dividends payable |
2,466,000 |
|
|
2,406,000 |
|
|
Contract liabilities |
46,070,000 |
|
|
38,682,000 |
|
|
Interest payable |
253,000 |
|
|
588,000 |
|
|
Total current liabilities |
173,772,000 |
|
|
145,347,000 |
|
|
Non-current portion of long-term debt |
159,400,000 |
|
|
165,000,000 |
|
|
Operating lease liabilities, non-current |
25,864,000 |
|
|
— |
|
|
Income taxes payable |
2,316,000 |
|
|
325,000 |
|
|
Deferred tax liability, net |
16,676,000 |
|
|
12,481,000 |
|
|
Long-term contract liabilities |
11,151,000 |
|
|
10,654,000 |
|
|
Other liabilities |
16,728,000 |
|
|
18,822,000 |
|
|
Total liabilities |
405,907,000 |
|
|
352,629,000 |
|
|
Commitments and contingencies |
|
|
|
|||
Stockholders’ equity: |
|
|
|
|||
Preferred stock, par value |
— |
|
|
— |
|
|
Common stock, par value |
3,977,000 |
|
|
3,928,000 |
|
|
Additional paid-in capital |
564,965,000 |
|
|
552,670,000 |
|
|
Retained earnings |
418,732,000 |
|
|
420,333,000 |
|
|
|
987,674,000 |
|
|
976,931,000 |
|
|
Less: |
|
|
|
|||
and |
(441,849,000 |
) |
|
(441,849,000 |
) |
|
Total stockholders’ equity |
545,825,000 |
|
|
535,082,000 |
|
|
Total liabilities and stockholders’ equity |
$ |
951,732,000 |
|
|
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 |
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Nine months ended |
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Fiscal |
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|
|
|
|
|
Year |
||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
2019 |
||||||||
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
||||||||
Net (loss) income |
$ |
(3,989,000 |
) |
|
7,612,000 |
|
|
$ |
5,894,000 |
|
|
18,906,000 |
|
|
$ |
25,041,000 |
|
(Benefit from) provision for income taxes |
(759,000 |
) |
|
1,547,000 |
|
|
1,503,000 |
|
|
1,791,000 |
|
|
3,869,000 |
|
|||
Interest (income) and other |
108,000 |
|
|
(22,000 |
) |
|
37,000 |
|
|
(7,000 |
) |
|
35,000 |
|
|||
Write-off of deferred financing costs |
— |
|
|
— |
|
|
— |
|
|
3,217,000 |
|
|
3,217,000 |
|
|||
Interest expense |
1,504,000 |
|
|
2,159,000 |
|
|
4,924,000 |
|
|
7,095,000 |
|
|
9,245,000 |
|
|||
Amortization of stock-based compensation |
981,000 |
|
|
1,119,000 |
|
|
3,098,000 |
|
|
3,356,000 |
|
|
11,427,000 |
|
|||
Amortization of intangibles |
5,517,000 |
|
|
4,536,000 |
|
|
15,952,000 |
|
|
13,113,000 |
|
|
18,320,000 |
|
|||
Depreciation |
2,650,000 |
|
|
2,918,000 |
|
|
8,022,000 |
|
|
8,618,000 |
|
|
11,927,000 |
|
|||
Estimated contract settlement costs |
476,000 |
|
|
2,465,000 |
|
|
444,000 |
|
|
6,351,000 |
|
|
6,351,000 |
|
|||
Settlement of intellectual property litigation |
— |
|
|
— |
|
|
— |
|
|
(3,204,000 |
) |
|
(3,204,000 |
) |
|||
Acquisition plan expenses |
5,983,000 |
|
|
1,704,000 |
|
|
14,397,000 |
|
|
4,612,000 |
|
|
5,871,000 |
|
|||
Facility exit costs |
— |
|
|
— |
|
|
— |
|
|
1,373,000 |
|
|
1,373,000 |
|
|||
Adjusted EBITDA |
$ |
12,471,000 |
|
|
24,038,000 |
|
|
$ |
54,271,000 |
|
|
65,221,000 |
|
|
$ |
93,472,000 |
|
In addition, a reconciliation of
|
|
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|
Three months ended |
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Nine months ended |
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|
Operating (Loss) |
|
Net (Loss) |
|
Net (loss) |
|
Operating |
|
Net Income |
|
Net Income |
||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
GAAP measures, as reported |
$ |
(3,136,000 |
) |
|
$ |
(3,989,000 |
) |
|
$ |
(0.16 |
) |
|
$ |
12,358,000 |
|
|
$ |
5,894,000 |
|
|
$ |
0.24 |
|
Acquisition plan expenses |
5,983,000 |
|
|
4,128,000 |
|
|
0.16 |
|
|
14,397,000 |
|
|
9,934,000 |
|
|
0.40 |
|
||||||
Estimated contract settlement costs |
476,000 |
|
|
328,000 |
|
|
0.01 |
|
|
444,000 |
|
|
306,000 |
|
|
0.01 |
|
||||||
Net discrete tax expense (benefit) |
— |
|
|
713,000 |
|
|
0.03 |
|
|
— |
|
|
(790,000 |
) |
|
(0.03 |
) |
||||||
Non-GAAP measures |
$ |
3,323,000 |
|
|
$ |
1,180,000 |
|
|
$ |
0.05 |
|
|
$ |
27,199,000 |
|
|
$ |
15,344,000 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
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Three months ended |
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Nine months ended |
||||||||||||||||||||
|
Operating |
|
Net Income |
|
Net Income |
|
Operating |
|
Net Income |
|
Net Income |
||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
GAAP measures, as reported |
$ |
11,296,000 |
|
|
$ |
7,612,000 |
|
|
$ |
0.31 |
|
|
$ |
31,002,000 |
|
|
$ |
18,906,000 |
|
|
$ |
0.78 |
|
Estimated contract settlement costs |
2,465,000 |
|
|
1,898,000 |
|
|
0.08 |
|
|
6,351,000 |
|
|
4,890,000 |
|
|
0.20 |
|
||||||
Settlement of intellectual property litigation |
— |
|
|
— |
|
|
— |
|
|
(3,204,000 |
) |
|
(2,467,000 |
) |
|
(0.10 |
) |
||||||
Acquisition plan expenses |
1,704,000 |
|
|
1,312,000 |
|
|
0.05 |
|
|
4,612,000 |
|
|
3,551,000 |
|
|
0.15 |
|
||||||
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 |
— |
|
|
(559,000 |
) |
|
(0.02 |
) |
|
— |
|
|
(2,991,000 |
) |
|
(0.12 |
) |
||||||
Non-GAAP measures |
$ |
15,465,000 |
|
|
$ |
10,263,000 |
|
|
$ |
0.42 |
|
|
$ |
40,134,000 |
|
|
$ |
25,423,000 |
|
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
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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