Earnings Release
Comtech Telecommunications Corp. Announces Results for the Third Quarter of Fiscal 2017 and Finalized Its Fiscal 2017 Guidance
June 7, 2017-- Comtech Telecommunications Corp.
(CMTL) today reported its operating results for the third fiscal
quarter ended April 30, 2017 and finalized its fiscal 2017 guidance.
Fiscal 2017 Third Quarter Highlights
•
Net sales for the three months ended April 30, 2017 were $127.8
million as compared to $124.2 million for the three months ended April
30, 2016.
•
Comtech achieved a company-wide book-to-bill ratio (a measure defined
as bookings divided by net sales) of 1.06 reflecting strong bookings
in its Government Solutions segment. As of April 30, 2017, the Company
had backlog of $461.3 million, up from $453.3 million as of January
31, 2017.
•
GAAP operating income was $10.2 million and GAAP net income was $4.4
million, or $0.19 per diluted share, for the three months ended April
30, 2017, as compared to a GAAP operating loss of $13.4 million and a
GAAP net loss of $14.4 million, or $(0.89) per diluted share, for the
three months ended April 30, 2016. During the third quarter of fiscal
2017, the Company favorably resolved a TCS intellectual property
litigation matter, which resulted in a $2.0 million contribution to
GAAP operating income. Excluding the $2.0 million benefit, GAAP
diluted EPS would have been $0.13 for the three months ended April 30,
2017.
•
Adjusted EBITDA (which excludes the $2.0 million favorable settlement
discussed above) was $18.1 million for the three months ended April
30, 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 April 30, 2017, the Company had $58.8 million of cash and cash
equivalents. During the third quarter of fiscal 2017, the Company
generated cash flows from operating activities of $18.3 million. In
view of the Company’s expectations for continued strong operating cash
flows, in June 2017, the Company entered into an amendment of its
Secured Credit Facility, which it expects will result in increased
operating and acquisition flexibility and simplify the calculations of
its financial covenants as compared to the original terms of the
Secured Credit Facility. This amendment is more fully discussed in a
Form 8-K and Form 10-Q filed by the Company with the Securities and
Exchange Commission today.
•
In May 2017, the Company announced the general availability of its
Heights(TM) Dynamic Network Access Technology ("HEIGHTS"), a potentially
revolutionary technology designed to deliver the most Internet
Protocol bits per Hertz (per satellite network operator) in its class,
as well as robust reliability. To date, customer reaction has been
positive, as reflected in the Company’s receipt of orders in the third
fiscal quarter, and the Company has a growing sales funnel of HEIGHTS
opportunities that the Company expects to close.
•
The Company believes it is starting to see benefits from its
continuing tactical shift in strategy 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 third quarter of
fiscal 2017, Fred Kornberg, President and Chief Executive Officer,
noted: "I am pleased with our third quarter performance on many fronts
as we march toward a strong finish to what is turning out to be a
successful year."
Mr. Kornberg added: "Although we have just started our fiscal 2018
business planning process, we are seeing positive signs across almost
all aspects of our business and believe that fiscal 2018 is shaping up
to be a great year."
2017 Fiscal Year Financial Targets
•
The Company has updated its fiscal 2017 revenue target to a range of
$550.0 million to $555.0 million. This new target, which compares to
its previous target of $570.0 million to $580.0 million, largely
reflects the Company’s updated assessment of the impact of its
tactical shift in strategy in its Government Solutions segment, a
longer sales cycle for its HEIGHTS products and other product mix
changes. The Company’s fourth quarter is expected to benefit from an
increase in orders for its HEIGHTS products; however, given the
complexity and sophistication of the HEIGHTS system and the Company’s
experience since its launch of HEIGHTS, the initial sales cycle will
be longer than the Company’s prior satellite earth station new product
launches. As such, the Company now anticipates that fiscal 2018 will
be the break-out year for orders and sales of its HEIGHTS products,
rather than the fourth quarter of fiscal 2017.
•
The Company updated its GAAP diluted EPS goal to approximately $0.67
per diluted share (which includes $0.33 per diluted share related to
$12.0 million of favorable TCS intellectual property litigation
settlements).
•
The Company firmed up its Adjusted EBITDA goal to a range of $68.0
million to $70.0 million. The range reflects updated revenue targets,
the benefit of additional cost reduction actions and the impact of
overall favorable changes in product mix assumptions.
•
The Company is pursuing a number of awards for large multi-million
dollar and multi-year contracts. Although the extent and timing of any
of these contract awards is difficult to predict, the Company expects
to receive some of these awards shortly. Because of uncertainty
regarding contract award and order timing, it is difficult to predict
our fourth quarter fiscal 2017 book-to-bill ratio. If some of these
large contracts are awarded and orders are booked in the fourth
quarter of fiscal 2017, consolidated fourth quarter bookings could be
almost twice the level that the Company achieved in its third quarter
of fiscal 2017. At the same time, it is possible that the award of
these potential large contracts and related orders may slip into
fiscal 2018. In either event, these orders, if booked, are expected to
benefit fiscal 2018 financial results.
•
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 $14.0 million to $15.0 million and total amortization of
stock-based compensation is expected to range from $5.0 million to
$8.0 million.
•
Interest expense, on total anticipated borrowings, is expected to
approximate $12.0 million (including amortization of deferred
financing costs). Such interest expense reflects an expected interest
rate ranging from approximately 4.5% to 5.0%. The Company’s actual
cash borrowing interest rate (which excludes the amortization of
deferred financing costs) currently approximates 4.0%.
•
The Company’s effective income tax rate (excluding discrete tax items)
is expected to approximate 36.0%.
Based on the anticipated timing of shipments and performance related to
orders currently in its backlog, together with anticipated new orders,
the Company expects its consolidated net sales and Adjusted EBITDA in
its fourth quarter to be the highest of any quarter in fiscal 2017.
Additional information about the Company’s fiscal 2017 guidance is
included in the Company’s third 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 June 8, 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) 839-5241 or (402) 220-2698. 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 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, including the risks associated with the
Company’s recent launch of HEIGHTS; 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,
as amended; 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 April 30,
Nine months ended April 30,
Net sales
$ 127,792,000
124,187,000
402,606,000
258,627,000
Cost of sales
75,331,000
72,796,000
244,833,000
149,596,000
Gross profit
52,461,000
51,391,000
157,773,000
109,031,000
Selling, general and administrative
25,923,000
30,439,000
89,596,000
60,818,000
Research and development
12,961,000
12,613,000
40,371,000
28,216,000
Amortization of intangibles
5,468,000
4,776,000
17,555,000
7,348,000
Settlement of intellectual property litigation
(2,041,000 )
--
(12,020,000 )
--
Acquisition plan expenses
--
16,960,000
--
20,689,000
42,311,000
64,788,000
135,502,000
117,071,000
Operating income (loss)
10,150,000
(13,397,000 )
22,271,000
(8,040,000 )
Interest expense and other
2,761,000
3,473,000
8,938,000
3,621,000
Interest income and other
88,000
(5,000 )
12,000
(227,000 )
Income (loss) before provision for (benefit from) income taxes
7,301,000
(16,865,000 )
13,321,000
(11,434,000 )
Provision for (benefit from) income taxes
2,884,000
(2,510,000 )
4,808,000
(994,000 )
Net income (loss)
$
4,417,000
(14,355,000 )
8,513,000
(10,440,000 )
Net income (loss) per share:
Basic
$
0.19
(0.89 )
0.36
(0.65 )
Diluted
$
0.19
(0.89 )
0.36
(0.65 )
Weighted average number of common shares outstanding - basic
23,449,000
16,195,000
23,420,000
16,184,000
Weighted average number of common and common equivalent shares
23,503,000
16,195,000
23,449,000
16,184,000
Dividends declared per issued and outstanding common share as of the
$
0.10
0.30
0.50
0.90
applicable dividend record date
COMTECH TELECOMMUNICATIONS CORP.
Condensed Consolidated Balance Sheets
April 30, 2017
July 31, 2016
Cash and cash equivalents
$
58,817,000
66,805,000
Accounts receivable, net
120,448,000
150,967,000
Inventories, net
67,337,000
71,354,000
Prepaid expenses and other current assets
19,599,000
14,513,000
Total current assets
266,201,000
303,639,000
Property, plant and equipment, net
33,981,000
38,667,000
Goodwill
290,633,000
287,618,000
Intangibles with finite lives, net
267,139,000
284,694,000
Deferred financing costs, net
2,765,000
3,309,000
Other assets, net
3,039,000
3,269,000
Total assets
$ 863,758,000
921,196,000
Liabilities and Stockholders’ Equity
Accounts payable
$
27,226,000
33,462,000
Accrued expenses and other current liabilities
73,844,000
98,034,000
Dividends payable
2,342,000
7,005,000
Customer advances and deposits
31,326,000
29,665,000
Current portion of long-term debt
14,387,000
11,067,000
Current portion of capital lease obligations
2,689,000
3,592,000
Interest payable
95,000
1,321,000
Total current liabilities
151,909,000
184,146,000
Non-current portion of long-term debt, net
211,509,000
239,969,000
Non-current portion of capital lease obligations
2,185,000
4,021,000
Income taxes payable
2,502,000
2,992,000
Deferred tax liability, net
14,784,000
9,798,000
Customer advances and deposits, non-current
8,064,000
5,764,000
Other liabilities
3,150,000
4,105,000
Total liabilities
394,103,000
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
3,860,000
3,837,000
shares; issued 38,603,033 shares and 38,367,997 shares at April 30,
2017 and July 31, 2016, respectively
Additional paid-in capital
527,434,000
524,797,000
Retained earnings
380,210,000
383,616,000
Treasury stock, at cost (15,033,317 shares at April 30, 2017 and
(441,849,000 )
(441,849,000 )
Total stockholders’ equity
469,655,000
470,401,000
Total liabilities and stockholders’ equity
$ 863,758,000
921,196,000
COMTECH TELECOMMUNICATIONS CORP.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial
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 April 30,
Nine months ended April 30,
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA:
Net income (loss)
$
4,417,000
(14,355,000 )
8,513,000
(10,440,000 )
Provision for (benefit from) income taxes
2,884,000
(2,510,000 )
4,808,000
(994,000 )
Interest (income) and other expense
88,000
(5,000 )
12,000
(227,000 )
Interest expense
2,761,000
3,473,000
8,938,000
3,621,000
Amortization of stock-based compensation
991,000
1,041,000
2,980,000
3,166,000
Amortization of intangibles
5,468,000
4,776,000
17,555,000
7,348,000
Depreciation
3,532,000
3,082,000
10,849,000
6,078,000
Acquisition plan expenses
--
16,960,000
--
20,689,000
Settlement of intellectual property litigation
(2,041,000 )
--
(12,020,000 )
--
Adjusted EBITDA
$ 18,100,000
12,462,000
41,635,000
29,241,000
ECMTL
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SOURCE: Comtech Telecommunications Corp.
Michael D. Porcelain, Senior Vice President and Chief Financial Officer
