Earnings Release
Comtech Telecommunications Corp. Announces Results for the Second Quarter of Fiscal 2017 and Updates Its Fiscal 2017 Guidance
March 8, 2017-- Comtech Telecommunications Corp. (CMTL) today
reported its operating results for the second fiscal quarter ended
January 31, 2017 and updates its fiscal 2017 guidance.
Fiscal 2017 Second Quarter Highlights
•
Net sales for the three months ended January 31, 2017 were $139.0
million as compared to $70.3 million for the three months ended
January 31, 2016. The period-over-period increase was driven by
incremental sales of approximately $75.9 million as a result of the
February 23, 2016 acquisition of TeleCommunication Systems, Inc.
("TCS").
•
Comtech achieved a company-wide book-to-bill ratio (a measure defined
as bookings divided by net sales) of 0.94 and experienced strong
bookings in its Commercial Solutions segment which achieved a
book-to-bill ratio of 1.22. Based on a number of large opportunities
across its order pipeline, the Company continues to expect its
consolidated book-to-bill ratio for fiscal 2017 to exceed 1.0. As of
January 31, 2017, the Company had backlog of $453.3 million.
•
GAAP operating income was $12.8 million and GAAP net income was $6.6
million, or $0.28 per diluted share, for the three months ended
January 31, 2017, as compared to GAAP operating income of $3.2 million
and GAAP net income of $2.5 million, or $0.15 per diluted share, for
the three months ended January 31, 2016. The Company has favorably
resolved a TCS intellectual property litigation and settled a related
claim against a prior owner of the TCS assets that were the subject of
the litigation. The total net cash outflow related to these two
matters is immaterial and, on a GAAP basis, the resolution resulted in
a $10.0 million contribution to operating income for the second
quarter. Excluding this favorable impact, GAAP diluted EPS would have
been $0.01 for the three months ended January 31, 2017.
•
Adjusted EBITDA (which excludes the $10.0 million favorable
settlement) was $13.5 million for the three months ended January 31,
2017. 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.
•
As of January 31, 2017, the Company had $63.1 million of cash and cash
equivalents. During the second quarter of fiscal 2017, the Company
generated cash flows from operating activities of $17.7 million.
•
The Company continues to implement 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.
In commenting on the Company’s performance during the second quarter of
fiscal 2017, Fred Kornberg, President and Chief Executive Officer, noted
"This was a very busy and successful quarter for our Company and we are
making progress on all fronts. We are pleased with our fiscal 2017
year-to-date results and are focused on carrying this momentum into the
second half of fiscal 2017."
2017 Fiscal Year Financial Targets
•
The Company has updated its fiscal 2017 revenue target to a range of
$570.0 million to $580.0 million. This new target, which compares to
its previous target of $600.0 million, largely reflects an updated
assessment of anticipated revenues considering its ongoing tactical
shift in strategy in its Government Solutions segment.
•
The Company updated its GAAP diluted EPS goal to approximately $0.68
(which reflects $0.27 related to the $10.0 million favorable TCS
intellectual property litigation settlement).
•
The Company has maintained its Adjusted EBITDA goal of approximately
$70.0 million.
•
Total annual amortization of intangibles is expected to range from
$22.0 million to $24.0 million, total depreciation expense is expected
to range from $15.0 million to $16.0 million and total amortization of
stock-based compensation is expected to be approximately $5.0 million.
•
Interest expense is expected to range between $12.0 million and $13.5
million (including amortization of deferred financing costs) which
reflects an interest rate range of 4.5% to 5.5% applied to total
anticipated borrowings.
•
The Company’s effective income tax rate (excluding discrete tax items
in fiscal 2017) is expected to approximate 35.5%.
Based on the anticipated timing of shipments and performance related to
orders currently in its backlog, as well as expected orders, the Company
anticipates net sales in its third quarter of fiscal 2017 to be slightly
lower than the level it achieved during its second quarter of fiscal
2017. At the same time, as a result of cost reduction activities and
expected favorable product mix changes, the Company anticipates that
Adjusted EBITDA in its third quarter of fiscal 2017 will exceed the
level it achieved in the second quarter of fiscal 2017. Additionally,
the Company expects its fourth quarter to be the peak quarter of fiscal
2017 in terms of net sales and Adjusted EBITDA.
Additional information about the Company’s fiscal 2017 guidance is
included in the Company’s second quarter investor presentation which is
located on the Company’s website at www.comtechtel.com.
Conference Call
The Company has scheduled an investor conference call for 8:30 AM (ET)
on Thursday March 9, 2017. 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 (888)
632-3384 (domestic), or (785) 424-1675 (international) and using the
conference I.D. "Comtech." A replay of the conference call will be
available for seven days by dialing (800) 753-9134 or (402) 220-2678. In
addition, an updated investor presentation, including earnings guidance,
is available on the Company’s website.
About Comtech
Comtech Telecommunications Corp. designs, develops, produces and markets
innovative products, systems and services for advanced communications
solutions. The Company 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 possibility that the expected
synergies from the acquisition of TeleCommunication Systems, Inc.
("TCS") will not be fully realized, or will not be realized within the
anticipated time period; the risk that Comtech’s and TCS’s businesses
will not be integrated successfully; the possibility of disruption from
the acquisition, making it more difficult to maintain business and
operational relationships or retain key personnel; 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; 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 TCS’s legacy legal proceedings,
customer claims for indemnification, and other similar matters; risks
associated with Comtech’s obligations under its Secured Credit Facility;
risks associated with the Company’s large contracts; and other factors
described in this and the Company’s other filings with the SEC.
COMTECH TELECOMMUNICATIONS CORP.
Condensed Consolidated Statements of Operations
Three months ended January 31,
Six months ended January 31,
Net sales
$ 139,028,000
70,323,000
274,814,000
134,440,000
Cost of sales
85,824,000
40,885,000
169,502,000
76,800,000
Gross profit
53,204,000
29,438,000
105,312,000
57,640,000
Selling, general and administrative
30,988,000
17,390,000
63,673,000
34,108,000
Research and development
13,314,000
7,663,000
27,410,000
15,603,000
Amortization of intangibles
6,032,000
1,196,000
12,087,000
2,572,000
Settlement of intellectual property litigation
(9,979,000 )
--
(9,979,000 )
--
40,355,000
26,249,000
93,191,000
52,283,000
Operating income
12,849,000
3,189,000
12,121,000
5,357,000
Interest expense and other
2,852,000
73,000
6,177,000
148,000
Interest income and other
(74,000 )
(110,000 )
(76,000 )
(222,000 )
Income before provision for income taxes
10,071,000
3,226,000
6,020,000
5,431,000
Provision for income taxes
3,486,000
750,000
1,924,000
1,516,000
Net income
$
6,585,000
2,476,000
4,096,000
3,915,000
Weighted average number of common shares outstanding - basic
23,428,000
16,186,000
23,406,000
16,178,000
Weighted average number of common and common equivalent shares
23,445,000
16,205,000
23,427,000
16,201,000
Dividends declared per issued and outstanding common share as of the
$
0.10
0.30
0.40
0.60
applicable dividend record date
COMTECH TELECOMMUNICATIONS CORP.
Condensed Consolidated Balance Sheets
January 31, 2017
July 31, 2016
Cash and cash equivalents
$
63,144,000
66,805,000
Accounts receivable, net
125,545,000
150,967,000
Inventories, net
71,168,000
71,354,000
Prepaid expenses and other current assets
18,638,000
14,513,000
Total current assets
278,495,000
303,639,000
Property, plant and equipment, net
35,759,000
38,667,000
Goodwill
290,633,000
287,618,000
Intangibles with finite lives, net
272,607,000
284,694,000
Deferred financing costs, net
2,946,000
3,309,000
Other assets, net
3,068,000
3,269,000
Total assets
$ 883,508,000
921,196,000
Liabilities and Stockholders’ Equity
Accounts payable
$
24,807,000
33,462,000
Accrued expenses and other current liabilities
88,795,000
98,034,000
Dividends payable
2,343,000
7,005,000
Customer advances and deposits
23,714,000
29,665,000
Current portion of long-term debt
13,281,000
11,067,000
Current portion of capital lease obligations
3,064,000
3,592,000
Interest payable
850,000
1,321,000
Total current liabilities
156,854,000
184,146,000
Non-current portion of long-term debt, net
229,834,000
239,969,000
Non-current portion of capital lease obligations
2,696,000
4,021,000
Income taxes payable
3,012,000
2,992,000
Deferred tax liability, net
12,479,000
9,798,000
Customer advances and deposits, non-current
8,726,000
5,764,000
Other liabilities
3,448,000
4,105,000
Total liabilities
417,049,000
450,795,000
Commitments and contingencies
Preferred stock, par value $.10 per share; shares authorized and
--
--
Common stock, par value $.10 per share; authorized 100,000,000
3,859,000
3,837,000
shares; issued 38,586,476 shares and 38,367,997 shares at January
31, 2017 and July 31, 2016, respectively
Additional paid-in capital
526,267,000
524,797,000
Retained earnings
378,182,000
383,616,000
Treasury stock, at cost (15,033,317 shares at January 31, 2017 and
(441,849,000 )
(441,849,000 )
Total stockholders’ equity
466,459,000
470,401,000
Total liabilities and stockholders’ equity
$ 883,508,000
921,196,000
COMTECH TELECOMMUNICATIONS CORP.
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 SEC. The Company’s Adjusted EBITDA is a
Non-GAAP measure that represents earnings before income taxes, interest
(income) and other expense, interest expense, amortization of
stock-based compensation, amortization of intangibles, depreciation
expense, acquisition plan expenses and settlement of intellectual
property litigation. 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, including a similarly titled measure previously
utilized by TCS. 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 our performance
and comparability of our 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
Comtech’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 Comtech’s SEC filings. The
Company has not quantitatively reconciled its fiscal 2017 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, costs related to its
acquisition plan, settlement of intellectual property litigation and
interest expense 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 January 31,
Six months ended January 31,
Reconciliation of GAAP Net Income to Adjusted EBITDA:
Net income
$
6,585,000
2,476,000
4,096,000
3,915,000
Provision for income taxes
3,486,000
750,000
1,924,000
1,516,000
Interest (income) and other expense
(74,000 )
(110,000 )
(76,000 )
(222,000 )
Interest expense
2,852,000
73,000
6,177,000
148,000
Amortization of stock-based compensation
1,019,000
1,074,000
1,989,000
2,125,000
Amortization of intangibles
6,032,000
1,196,000
12,087,000
2,572,000
Depreciation
3,568,000
1,466,000
7,317,000
2,996,000
Acquisition plan expenses
--
2,337,000
--
3,729,000
Settlement of intellectual property litigation
(9,979,000 )
--
(9,979,000 )
--
Adjusted EBITDA
$ 13,489,000
9,262,000
23,535,000
16,779,000
ECMTL
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SOURCE: Comtech Telecommunications Corp.
Michael D. Porcelain, Senior Vice President and Chief Financial Officer
