Earnings Release
Comtech Telecommunications Corp. Announces Results for the Third Quarter of Fiscal 2016 and Provides Updated Financial Guidance
June 8, 2016-- Comtech Telecommunications Corp. (CMTL) today
reported its operating results for the three and nine months ended April
30, 2016. Net sales for the three months ended April 30, 2016 were
$124.2 million compared to $71.6 million for the three months ended
April 30, 2015. Net sales for the nine months ended April 30, 2016 were
$258.6 million compared to $229.8 million for the nine months ended
April 30, 2015. The increase in net sales for both periods reflects
incremental sales of approximately $66.0 million as a result of the
acquisition of TeleCommunication Systems, Inc. ("TCS,") partially offset
by lower sales of legacy Comtech products. As previously announced, the
TCS acquisition closed on February 23, 2016. The Company achieved
bookings of approximately $139.2 million during the third quarter of
fiscal 2016 which translates into a quarterly book-to-bill ratio (a
measure of quarterly bookings divided by quarterly net sales) of 1.12
compared with an average book-to-bill ratio of 0.81 for the prior two
quarters.
Operating net loss was $13.4 million and $8.0 million for the three and
nine months ended April 30, 2016, respectively as compared to operating
income of $7.2 million and $26.0 million for the three and nine months
ended April 30, 2015, respectively. During the three and nine months
ended April 30, 2016, we expensed $17.0 million and $20.7 million,
respectively, of pre-tax acquisition plan expenses, almost all of which
relates to the Company’s acquisition of TCS. Excluding these expenses,
we would have reported operating income for the three and nine months
ended April 30, 2016 of $3.6 million and $12.7 million, respectively.
GAAP net loss was $14.4 million, or $(0.89) per diluted share, for the
three months ended April 30, 2016 as compared to GAAP net income of $5.0
million, or $0.30 per diluted share, for the three months ended April
30, 2015. GAAP net loss was $10.4 million, or $(0.65) per diluted share,
for the nine months ended April 30, 2016 as compared to GAAP net income
of $17.8 million, or $1.08 per diluted share, for the nine months ended
April 30, 2015.
Adjusted EBITDA was $12.5 million and $29.2 million for the three and
nine months ended April 30, 2016 as compared to $11.6 million and $39.8
million for the three and nine months ended April 30, 2015. Adjusted
EBITDA is a Non-GAAP financial measure that is defined and reconciled to
the most directly comparable GAAP financial measure in the below table.
The Company also announced that it is updating its fiscal 2016 revenue
guidance to a new range of $425.0 million to $435.0 million and that it
expects GAAP diluted EPS for fiscal 2016 will range from a loss of $0.90
to a loss of $0.81. The Company is also updating its fiscal 2016
Adjusted EBITDA guidance to a new range of $44.0 million to $46.0
million. The Company’s updated fiscal 2016 financial guidance reflects
an updated assessment of the timing of expected orders, anticipated
shipment delays related to over-the-horizon microwave equipment orders
currently in our backlog, as well as additional legal expenses
associated with legacy TCS intellectual property matters which are
discussed in more detail in the Company’s Form 10-Q filed with the
Securities and Exchange Commission ("SEC") earlier today. The Company
also expects to record an additional $3.9 million of acquisition plan
expenses during the fourth quarter of fiscal 2016. The Company is on
track to deliver an annual run-rate of cost synergies of at least $8.0
million. The Company also indicated that it has begun its annual
planning process and is targeting fiscal 2017 Adjusted EBITDA to range
from $70.0 million to $80.0 million. These Adjusted EBITDA targets
include twelve full months of TCS operations, a full year of synergies
and earnings growth, partially offset by incremental legal expenses
related to the aforementioned intellectual property matters.
In commenting on the Company’s performance and fiscal 2016 business
outlook, Dr. Stanton Sloane, President and Chief Executive Officer,
stated, "Our third quarter of fiscal 2016 reflects only two full months
of TCS operations but we are extremely pleased with what we have seen so
far. We are seeing signs of end-market stabilization for our legacy
Comtech business and bookings for our most recent quarter across most of
our product lines were strong. With much of the integration work behind
us, I look forward to a solid finish in fiscal 2016 and I am
increasingly optimistic that fiscal 2017 will be a strong year for
Comtech."
Selected Fiscal 2016 Third Quarter Financial Metrics and Other Items
•
The Company notes that its fiscal 2016 updated financial guidance
reflects only five full months of TCS operations as a result of the
closing of the TCS acquisition on February 23, 2016. Comtech’s fourth
fiscal quarter will reflect a full three months of combined operations.
•
As of April 30, 2016, the Company had $69.1 million of cash and cash
equivalents before payment of its quarterly dividend of $4.9 million
on May 20, 2016. However, after payment of the May 20, 2016 dividend
and other remaining transaction and merger related expenditures, the
Company now has approximately $50.0 million of cash and cash
equivalents.
•
The Company’s effective tax rate for fiscal 2016 will be impacted by
various items including the non-deductibility of transaction related
expenses incurred in connection with the TCS acquisition. Looking
forward, the Company currently expects that its fiscal 2017 effective
tax rate, excluding discrete items will approximate 37.5%.
•
The Company’s interest expense for the third quarter reflects, and
going forward will continue to reflect the cost of borrowing in part
for the TCS acquisition and the discharge of TCS’s debt. As of
April 30, 2016, total debt outstanding, net of $6.2 million of
deferred financing costs and including capital lease obligations, was
$351.2 million, of which $17.8 million was current. The blended
interest expense rate during the fourth quarter of fiscal 2016 is
expected to approximate 5.0% (including amortization of deferred
financing charges). Looking forward to fiscal 2017, the Company
currently expects that the blended interest rate on its total debt
will approximate 5.0%.
•
The Company has completed a preliminary analysis and assessment of the
fair values of the TCS assets acquired and liabilities assumed. Based
on this preliminary analysis, $280.9 million was allocated to
intangibles with definite lives and $127.1 million was allocated to
goodwill. Total amortization of intangibles during the fourth quarter
of fiscal 2016 (including amortization associated with the TCS assets
acquired) is expected to approximate $6.0 million. Based on this
preliminary analysis, total annual amortization of intangibles with
definite lives in fiscal 2017, based on this preliminary analysis and
assessment, is expected to approximate $22.8 million.
•
Backlog as of April 30, 2016 was $433.6 million compared to $92.6
million as of January 31, 2016. Backlog as of April 30, 2016 includes
the acquired backlog of TCS. Total bookings for the three and nine
months ended April 30, 2016 were $139.2 million and $248.5 million
compared to $72.2 million and $226.4 million for the three and nine
months ended April 30, 2015.
Additional information about the Company’s updated fiscal 2016 financial
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 9th, 2016. Investors and the public are invited to
access a live webcast of the conference call from the Investor Relations
section of the Comtech web site at www.comtechtel.com.
Alternatively, investors can access the conference call by dialing (877)
876-9177 (domestic), or (785) 424-1666 (international) and using the
conference I.D. "Comtech." A replay of the conference call will be
available for seven days by dialing (800) 723-0520 or (402) 220-2653. In
addition, an updated investor presentation, including earnings guidance,
is available on the Company’s web site.
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 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 and acquisition debt; 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
$ 124,187,000
71,633,000
258,627,000
229,826,000
Cost of sales
72,796,000
39,325,000
149,596,000
124,318,000
Gross profit
51,391,000
32,308,000
109,031,000
105,508,000
Selling, general and administrative
30,439,000
15,005,000
60,818,000
46,557,000
Research and development
12,613,000
8,582,000
28,216,000
28,267,000
Acquisition plan expenses
16,960,000
--
20,689,000
--
Amortization of intangibles
4,776,000
1,561,000
7,348,000
4,682,000
64,788,000
25,148,000
117,071,000
79,506,000
Operating (loss) income
(13,397,000 )
7,160,000
(8,040,000 )
26,002,000
Interest expense and other
3,473,000
72,000
3,621,000
406,000
Interest income and other
(5,000 )
(107,000 )
(227,000 )
(281,000 )
(Loss) income before provision for income taxes
(16,865,000 )
7,195,000
(11,434,000 )
25,877,000
(Benefit from) provision for income taxes
(2,510,000 )
2,235,000
(994,000 )
8,107,000
Net (loss) income
$ (14,355,000 )
4,960,000
(10,440,000 )
17,770,000
Net (loss) income per share:
Basic
$
(0.89 )
0.31
(0.65 )
1.10
Diluted
$
(0.89 )
0.30
(0.65 )
1.08
Weighted average number of common shares outstanding - basic
16,195,000
16,202,000
16,184,000
16,220,000
Weighted average number of common and common equivalent shares
16,195,000
16,382,000
16,184,000
16,468,000
Dividends declared per issued and outstanding common share as of the
$
0.30
0.30
0.90
0.90
applicable dividend record date
COMTECH TELECOMMUNICATIONS CORP.
Condensed Consolidated Balance Sheets
April 30, 2016
July 31, 2015
Cash and cash equivalents
$
69,112,000
150,953,000
Accounts receivable, net
134,054,000
69,255,000
Inventories, net
75,324,000
62,068,000
Prepaid expenses and other current assets
19,753,000
7,396,000
Deferred tax asset, net
--
11,084,000
Total current assets
298,243,000
300,756,000
Property, plant and equipment, net
39,588,000
15,370,000
Goodwill
264,503,000
137,354,000
Intangibles with finite lives, net
293,561,000
20,009,000
Deferred financing costs, net
3,739,000
--
Other assets, net
3,694,000
388,000
Total assets
$ 903,328,000
473,877,000
Liabilities and Stockholders’ Equity
Accounts payable
$
24,086,000
15,708,000
Accrued expenses and other current liabilities
75,137,000
29,470,000
Dividends payable
4,851,000
4,839,000
Customer advances and deposits, current
29,779,000
14,320,000
Current portion of long-term debt
14,062,000
--
Current portion of capital lease obligations
3,770,000
--
Interest payable
111,000
--
Total current liabilities
151,796,000
64,337,000
Non-current portion of long-term debt, net
328,486,000
--
Non-current portion of capital lease obligations
4,880,000
--
Income taxes payable
3,262,000
1,573,000
Deferred tax liability, net
24,193,000
2,925,000
Customer advances and deposits, non-current
6,137,000
--
Other liabilities
4,776,000
3,633,000
Total liabilities
523,530,000
72,468,000
Commitments and contingencies
Preferred stock, par value $.10 per share; shares authorized and
--
--
Common stock, par value $.10 per share; authorized 100,000,000
3,121,000
3,117,000
shares; issued 31,204,396 shares and 31,165,401 shares at April 30,
2016 and July 31, 2015, respectively
Additional paid-in capital
430,549,000
427,083,000
Retained earnings
387,977,000
413,058,000
Treasury stock, at cost (15,033,317 shares at April 30, 2016 and
(441,849,000 )
(441,849,000 )
Total stockholders’ equity
379,798,000
401,409,000
Total liabilities and stockholders’ equity
$ 903,328,000
473,877,000
COMTECH TELECOMMUNICATIONS CORP. 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 our
financial results, this press release contains "Non-GAAP financial
measures" under the rules of the SEC. Our Adjusted EBITDA is a Non-GAAP
measure that represents earnings before interest, income taxes,
depreciation and amortization of intangibles, amortization of
stock-based compensation, acquisition plan expenses and strategic
alternatives analysis expenses. The Company’s definition of Adjusted
EBITDA may differ from the definition of EBITDA used by other companies
and 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 its ability to generate cash
flow and service debt. 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. We have not quantitatively
reconciled our fiscal 2016 Adjusted EBITDA guidance and fiscal 2017
Adjusted EBITDA targets to the most directly comparable GAAP measures
because items such as stock-based compensation, adjustments to the
provision for income taxes, amortization of intangibles, costs related
to our acquisition plan and interest expense are certain items that
impact these measures, have not yet occurred, are out of our 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 our financial results.
Three months ended April 30,
Nine months ended April 30,
Reconciliation of GAAP Net Income to Adjusted EBITDA:
GAAP net (loss) income
$ (14,355,000 )
4,960,000
(10,440,000 )
17,770,000
Income taxes
(2,510,000 )
2,235,000
(994,000 )
8,107,000
Net interest (income) expense and other
3,468,000
(35,000 )
3,394,000
125,000
Amortization of stock-based compensation
1,041,000
1,244,000
3,166,000
3,642,000
Depreciation and other amortization
7,858,000
3,227,000
13,426,000
9,578,000
Acquisition plan expenses
16,960,000
--
20,689,000
--
Strategic alternatives analysis expenses
--
--
--
585,000
Adjusted EBITDA
$
12,462,000
11,631,000
29,241,000
39,807,000
ECMTL
http://cts.businesswire.com/ct/CT?id=bwnews&sty=20160608006513r1&sid=cmtx6&distro=nx&lang=en
View source version on businesswire.com: http://www.businesswire.com/news/home/20160608006513/en/
SOURCE: Comtech Telecommunications Corp.
Michael D. Porcelain, Senior Vice President and Chief Financial Officer
