Earnings Release
Comtech Telecommunications Corp. Announces Results for Fiscal 2018 Second Quarter and Updates Its Fiscal 2018 Guidance
March 7, 2018-- Comtech Telecommunications Corp. (CMTL) today
reported its operating results for the second fiscal quarter ended
January 31, 2018 and updated its fiscal 2018 guidance.
Fiscal 2018 Second Quarter Highlights
--
Net sales were $133.7 million.
•
Bookings were $210.6 million, with a book-to-bill ratio (a measure
defined as bookings divided by net sales) of 1.57.
•
Backlog was $567.3 million, which is close to Comtech’s record high.
Comtech’s backlog does not include the unfunded portions of multi-year
contracts. As such, the total value of multi-year contracts that
Comtech has received is substantially higher.
•
Comtech received several strategic contract awards including: (i) a
$134.0 million award to provide one of the largest wireless carriers
in the U.S. with enhanced 911 services; (ii) a $123.6 million contract
to be the sole provider of sustainment support services for the U.S.
Army’s "SNAP" mobile satellite communications program; and (iii) an
initial $11.7 million order to provide several thousand of Comtech’s
next generation MT-2025 mobile satellite transceivers to support the
U.S. Army’s Blue Force Tracking-2 ("BFT-2") system.
•
GAAP operating income was $4.9 million and GAAP net income was $15.8
million, or $0.66 per diluted share.
•
GAAP net income includes a net tax benefit of $14.0 million, or $0.59
per diluted share ("Tax Gain"), primarily due to the remeasurement of
deferred tax assets and liabilities as a result of Tax Reform, which
also resulted in a reduction to Comtech’s fiscal 2018 estimated
effective tax rate to approximately 27.75%. Excluding the $0.59 per
diluted share Tax Gain, GAAP net income would have been approximately
$1.8 million, or $0.07 per diluted share.
•
Adjusted EBITDA was $14.5 million. 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 $2.7 million.
--
Cash dividends of $2.4 million were paid to common stockholders.
--
$40.5 million of cash and cash equivalents as of January 31, 2018.
In commenting on Comtech’s performance during the second quarter of
fiscal 2018 and Comtech’s fiscal 2018 guidance, Fred Kornberg, President
and Chief Executive Officer, stated, "I could not be more pleased with
our better than expected second quarter results and the major multi-year
contract awards that we have received to-date. Business momentum remains
strong and shows no signs of slowing down. Given our year-to-date
performance and strong positive business momentum, we are increasing our
2018 fiscal year financial targets and expect that fiscal 2018 will be a
very strong year."
Updated 2018 Fiscal Year Financial Targets
•
Comtech is increasing its revenue target to a new range of
approximately $570.0 million to $585.0 million, as compared to a prior
range of $550.0 million to $575.0 million. Despite the absence of $6.7
million of BFT-1 intellectual property license fees that Comtech
earned in fiscal 2017 supporting the U.S. Army’s Blue Force Tracking
Program, the mid-point of Comtech’s new fiscal 2018 revenue target
range represents a year-over-year growth rate of close to 5.0%.
•
Comtech is increasing its Adjusted EBITDA target to a new range of
$72.0 million to $76.0 million, as compared to a prior range of $69.0
million to $73.0 million. Despite the absence of the $6.7 million of
BFT-1 intellectual property license fees, the mid-point of the new
fiscal 2018 Adjusted EBITDA target range represents a year-over-year
growth rate of close to 5.0%.
•
Comtech’s third quarter consolidated net sales and Adjusted EBITDA are
expected to be higher than the related amounts achieved in its second
quarter of fiscal 2018 by approximately 10.0%. Comtech’s consolidated
GAAP operating income and Adjusted EBITDA, as a percentage of its
consolidated third quarter fiscal 2018 net sales, are expected to
approximate 4.0% and 11.0%, respectively, with significant increases
in each metric in the fourth quarter of fiscal 2018.
•
Comtech is increasing its GAAP diluted EPS target to a new range of
$1.08 to $1.23, as compared to a prior range of $0.44 to $0.46. This
new target range includes the benefits of the $0.59 per diluted share
Tax Gain and better than expected operating performance, partially
offset by an increase in expected amortization of stock-based
compensation. GAAP diluted EPS for Comtech’s third quarter of fiscal
2018 is expected to approximate a range of $0.10 to $0.12 per diluted
share, which is higher than the $0.07 per diluted share Comtech
achieved in its second quarter of fiscal 2018 when excluding the $0.59
per diluted share Tax Gain.
•
In line with its original Business Outlook for Fiscal 2018, Comtech’s
fourth quarter of fiscal 2018 is expected to be the peak quarter - by
far - for consolidated net sales, GAAP operating income and Adjusted
EBITDA.
•
Comtech’s new estimated effective tax rate of 27.75% reflects seven
months of benefit related to Tax Reform. Although Comtech continues to
perform an analysis of Tax Reform and its impact, Comtech’s initial
assessment is that its effective tax rate in fiscal 2019, before any
discrete items, will range from 24.5% to 26.0%.
•
If order flow remains strong and Comtech is able to achieve all of its
fiscal 2018 business goals, it is possible that Comtech’s actual
fiscal 2018 consolidated net sales, GAAP diluted EPS and Adjusted
EBITDA could be higher than its targeted amounts.
Additional information about Comtech’s fiscal 2018 guidance is included
in Comtech’s second quarter investor presentation which is located on
Comtech’s website at www.comtechtel.com.
Conference Call
Comtech has scheduled an investor conference call for 8:30 AM (ET) on
Thursday, March 8, 2018. 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)
632-3389 (domestic), or (785) 424-1673 (international) and using the
conference I.D. "Comtech." A replay of the conference call will be
available for seven days by dialing (800) 839-2383 or (402) 220-7202. In
addition, an updated investor presentation, including earnings guidance,
is available on Comtech’s website.
About Comtech
Comtech Telecommunications Corp. designs, develops, produces and markets
innovative products, systems and services for advanced communications
solutions. Comtech 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 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(TM) Dynamic Network Access Technology
("HEIGHTS" or "HDNA"); 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 TeleCommunication Systems, Inc.’s ("TCS") legacy
legal proceedings, customer claims for indemnification and other similar
matters; risks associated with the Company’s obligations under its
Secured Credit Facility, as amended; risks associated with the Company’s
large contracts; the impact of H.R.1, also known as the Tax Cuts and
Jobs Act ("Tax Reform"), which was recently enacted in the U.S.; and
other factors described in this and the Company’s other filings with the
Securities and Exchange Commission.
COMTECH TELECOMMUNICATIONS CORP.
Condensed Consolidated Statements of Operations
Three months ended January 31,
Six months ended January 31,
Net sales
$ 133,731,000
139,028,000
255,300,000
274,814,000
Cost of sales
82,930,000
85,824,000
156,783,000
169,502,000
Gross profit
50,801,000
53,204,000
98,517,000
105,312,000
Selling, general and administrative
27,215,000
30,988,000
55,690,000
63,673,000
Research and development
13,435,000
13,314,000
27,185,000
27,410,000
Amortization of intangibles
5,268,000
6,032,000
10,537,000
12,087,000
Settlement of intellectual property litigation
--
(9,979,000 )
--
(9,979,000 )
45,918,000
40,355,000
93,412,000
93,191,000
Operating income
4,883,000
12,849,000
5,105,000
12,121,000
Interest expense
2,519,000
2,852,000
5,107,000
6,177,000
Interest (income) and other
(48,000 )
(74,000 )
(9,000 )
(76,000 )
Income before (benefit from) provision for income taxes
2,412,000
10,071,000
7,000
6,020,000
(Benefit from) provision for income taxes
(13,349,000 )
3,486,000
(14,094,000 )
1,924,000
Net income
$
15,761,000
6,585,000
14,101,000
4,096,000
Weighted average number of common shares outstanding - basic
23,816,000
23,428,000
23,805,000
23,406,000
Weighted average number of common and common equivalent shares
23,953,000
23,445,000
23,942,000
23,427,000
Dividends declared per issued and outstanding common share as of the
$
0.10
0.10
0.20
0.40
applicable dividend record date
COMTECH TELECOMMUNICATIONS CORP.
Condensed Consolidated Balance Sheets
January 31, 2018
July 31, 2017
Cash and cash equivalents
$
40,472,000
41,844,000
Accounts receivable, net
117,973,000
124,962,000
Inventories, net
71,707,000
60,603,000
Prepaid expenses and other current assets
14,915,000
13,635,000
Total current assets
245,067,000
241,044,000
Property, plant and equipment, net
30,122,000
32,847,000
Goodwill
290,633,000
290,633,000
Intangibles with finite lives, net
251,334,000
261,871,000
Deferred financing costs, net
2,635,000
3,065,000
Other assets, net
2,860,000
2,603,000
Total assets
$ 822,651,000
832,063,000
Liabilities and Stockholders’ Equity
Accounts payable
$
27,662,000
29,402,000
Accrued expenses and other current liabilities
60,585,000
68,610,000
Dividends payable
2,351,000
2,343,000
Customer advances and deposits
24,848,000
25,771,000
Current portion of long-term debt
17,211,000
15,494,000
Current portion of capital lease obligations
1,858,000
2,309,000
Interest payable
83,000
282,000
Total current liabilities
134,598,000
144,211,000
Non-current portion of long-term debt, net
174,225,000
176,228,000
Non-current portion of capital lease obligations
885,000
1,771,000
Income taxes payable
2,558,000
2,515,000
Deferred tax liability, net
6,088,000
17,306,000
Customer advances and deposits, non-current
8,385,000
7,227,000
Other liabilities
5,291,000
2,655,000
Total liabilities
332,030,000
351,913,000
Commitments and contingencies
Preferred stock, par value $.10 per share; shares authorized and
--
--
Common stock, par value $.10 per share; authorized 100,000,000
3,865,000
3,862,000
shares; issued 38,653,430 shares and 38,619,467 shares at January
31, 2018 and July 31, 2017, respectively
Additional paid-in capital
534,224,000
533,001,000
Retained earnings
394,381,000
385,136,000
(441,849,000 )
(441,849,000 )
Treasury stock, at cost (15,033,317 shares at January 31, 2018
Total stockholders’ equity
490,621,000
480,150,000
Total liabilities and stockholders’ equity
$ 822,651,000
832,063,000
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 (loss) before income taxes,
interest (income) and other expense, interest expense, amortization of
stock-based compensation, amortization of intangibles, depreciation
expense, settlement of intellectual property litigation, acquisition
plan expenses or strategic alternatives analysis expenses and other. 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. 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 the Company’s performance and comparability of its
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 the Company’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 the Company’s SEC filings. The Company has not
quantitatively reconciled its fiscal 2018 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 and interest expense, which 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,
Fiscal Year
Reconciliation of GAAP Net Income to Adjusted EBITDA:
Net income
$ 15,761,000
6,585,000
14,101,000
4,096,000
$ 15,827,000
(Benefit from) provision for income taxes
(13,349,000 )
3,486,000
(14,094,000 )
1,924,000
9,654,000
Interest (income) and other expense
(48,000 )
(74,000 )
(9,000 )
(76,000 )
(68,000 )
Interest expense
2,519,000
2,852,000
5,107,000
6,177,000
11,629,000
Amortization of stock-based compensation
1,080,000
1,019,000
1,827,000
1,989,000
8,506,000
Amortization of intangibles
5,268,000
6,032,000
10,537,000
12,087,000
22,823,000
Depreciation
3,317,000
3,568,000
6,663,000
7,317,000
14,354,000
Settlement of intellectual property litigation
--
(9,979,000 )
--
(9,979,000 )
(12,020,000 )
Adjusted EBITDA
$ 14,548,000
13,489,000
24,132,000
23,535,000
$ 70,705,000
ECMTL
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SOURCE: Comtech Telecommunications Corp.
Michael D. Porcelain, Senior Vice President and Chief Financial Officer
