June 5, 2019– Comtech Telecommunications Corp. (NASDAQ: CMTL) today
reported its operating results for the third fiscal quarter ended
April 30, 2019 and updated its fiscal 2019 guidance.
Fiscal 2019 Third Quarter Highlights
-
Net sales for the third quarter of fiscal 2019 were $170.4 million as
compared to the $147.9 million achieved during the third quarter of
fiscal 2018, representing an increase of $22.5 million, or 15.2%. Net
sales for the first nine months of fiscal 2019 were $495.4 million as
compared to the $403.2 million achieved during the first nine months
of fiscal 2018, representing an increase of $92.2 million, or 22.9%. -
Bookings during the third quarter of fiscal 2019 were $331.2 million,
with a company-wide book-to-bill ratio (a measure defined as bookings
divided by net sales) of 1.94 with both its Commercial and Government
Solutions Segments achieving book-to-bill ratios in excess of 1.00.
Bookings this quarter reflect strength in almost all of Comtech’s
product lines, especially its safety and security technology solutions
and HeightsTM satellite earth station technology solutions. -
Backlog as of April 30, 2019 reflects a record high of $747.1 million.
Backlog does not include the portions of multi-year contracts that
have not been funded. When including the total value of multi-year
contracts that Comtech has actually received, its revenue visibility
is over $1.0 billion. -
Adjusted EBITDA for the third quarter of fiscal 2019 was $24.0
million. Adjusted EBITDA for the first nine months of fiscal 2019 was
$65.2 million as compared to the $47.7 million achieved during the
first nine months of fiscal 2018, representing an increase of $17.5
million, or 36.7%. 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 took several strategic steps to enhance its business
including: (i) closed on the acquisition of Solacom Technologies Inc.
(“Solacom”) on February 28, 2019; (ii) closed on the acquisition of
the state and local government next-generation 911 business from
General Dynamics Information Technology, Inc. (the “GD NG-911
business”) on April 29, 2019; (iii) initiated efforts to acquire a
small technology company with complimentary solution offering; and
(iv) continued its ongoing evaluation and repositioning of its
enterprise technology product solution line. In connection with these
steps, Comtech incurred $1.7 million of acquisition plan expenses and
$2.5 million of estimated contract settlement costs. It also recorded
$0.6 million of discrete tax benefit. Including all of these expenses,
GAAP operating income was $11.3 million, GAAP net income was $7.6
million and GAAP earnings per diluted share (“EPS”) was $0.31. -
As shown in the table below, Non-GAAP EPS for the third quarter of
fiscal 2019 would have been $0.42 which was 23.5% higher than the
Non-GAAP EPS of $0.34 for the third quarter of fiscal 2018. Non-GAAP
EPS for the first nine months of fiscal 2019 was $1.05 or 208.8%
higher than the Non-GAAP EPS of $0.34 for the first nine months of
fiscal 2018. -
Cash flows from operating activities during the third quarter of
fiscal 2019 were $40.8 million. Cash flows from operating activities
during the nine months ended April 30, 2019 were $53.8 million.
In commenting on Comtech’s performance for the third quarter of fiscal
2019, Fred Kornberg, President and Chief Executive Officer, noted, “The
third quarter was yet another strong showing of outstanding business
performance by Comtech. Our business excelled on many fronts. We expect
the positive business momentum we are experiencing to continue into
fiscal 2020.”
Mr. Kornberg further added, “The Company’s strategic acquisitions of
Solacom and the GD NG-911 business significantly enhanced Comtech’s
ability to deliver innovative market-leading products and services to
public safety agencies around the world. Anchored by our strong backlog,
recent acquisitions and expected strong fiscal 2019 finish, fiscal 2020
is looking like it will be a terrific year.”
Updated 2019 Fiscal Year Financial Targets
-
Comtech’s fiscal 2019 consolidated net sales are now expected to be
$660.0 million which is higher than the mid-point of its prior
expected range of $645.0 million to $660.0 million. Fourth quarter
consolidated net sales are estimated to approximate $164.6 million.
Comtech’s updated fiscal 2019 net sales target of $660.0 million
reflects an anticipated growth rate of 15.7% from the $570.6 million
it achieved in fiscal 2018. -
Comtech fiscal 2019 consolidated Adjusted EBITDA is now expected to be
$90.0 million which is better than the high-point of its prior
expected range of $85.0 million to $89.0 million. Fourth quarter
consolidated Adjusted EBITDA is expected to approximate $24.8 million.
Comtech’s updated fiscal 2019 Adjusted EBITDA target of $90.0 million
reflects an anticipated growth rate of 14.8% from the $78.4 million it
achieved in fiscal 2018. -
Total amortization of intangible assets is expected to approximate
$18.3 million in fiscal 2019 with the fourth quarter approximating
$5.2 million.
-
Total amortization of stock-based compensation expense is expected to
approximate $12.0 million in fiscal 2019 with the fourth quarter
approximating $8.6 million. -
Comtech’s estimated effective income tax rate for fiscal 2019
(excluding net discrete items) is expected to approximate 23.0%. -
Comtech expects its fourth quarter of fiscal 2019 to be impacted by a
charge of approximately $2.2 million or $0.07 GAAP EPS primarily
related to ongoing efforts for a small targeted acquisition and its
enterprise technology product solutions repositioning. Including the
impact of such charge, Comtech’s updated GAAP EPS target for fiscal
2019 is now $0.88 with its fourth quarter GAAP EPS approximating $0.10. -
Excluding the net charges of $0.27 GAAP EPS during the nine months
ended April 30, 2019 (as described in the below table) and the
aforementioned fiscal 2019 fourth quarter charge of $0.07 GAAP EPS,
Non-GAAP EPS for fiscal 2019 is expected to approximate $1.22 with
fourth quarter Non-GAAP EPS of $0.17. Comtech’s fiscal 2019 Non-GAAP
EPS target of $1.22 represents a 62.7% increase from the $0.75
Non-GAAP EPS it achieved in fiscal 2018, as shown in the below table. -
There is no certainty that Comtech’s ongoing efforts related to a
small targeted acquisition will be successful and, except for
acquisition plan expenses, Comtech’s updated fiscal 2019 financial
targets do not include any impact of such targeted acquisition plan.
If order flow remains strong and Comtech can achieve all of its fiscal
2019 business goals, it is possible that consolidated net sales and
Adjusted EBITDA could be higher than its targeted amounts.
Additional information about Comtech’s third quarter financial results
and Business Outlook for Fiscal 2019 is set forth in Comtech’s Quarterly
Report on Form 10-Q filed with the SEC today and Comtech’s third quarter
investor presentation which is located on its website at www.comtechtel.com.
Conference Call
Comtech has scheduled an investor conference call for 8:30 AM (ET) on
Thursday, June 6, 2019. 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 (877)
876-9173 (domestic), or (785) 424-1667 (international) and using the
conference I.D. “Comtech.” A replay of the conference call will be
available for seven days by dialing (800) 753-6121 or (402) 220-2676. 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 possibility that the expected
synergies from the recent acquisitions will not be fully realized, or
will not be realized within the anticipated time periods; the risk that
the acquired businesses will not be integrated with Comtech
successfully; the possibility of disruption from the recent
acquisitions, 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 risks associated with Comtech’s ongoing
evaluation and repositioning of its enterprise technology solutions
offering in its Commercial Solutions segment; 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 HeightsTM
Dynamic Network Access Technology (“HEIGHTS” or “HDNA”); changing
customer demands and or procurement strategies; 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 legal proceedings, customer claims for
indemnification and other similar matters; risks associated with the
Company’s obligations under its Credit Facility; 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 enacted in December 2017
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. | ||||||||||||||
| AND SUBSIDIARIES | ||||||||||||||
|
Condensed Consolidated Statements of Operations |
||||||||||||||
|
(Unaudited) |
||||||||||||||
| Three months ended April 30, | Nine months ended April 30, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||
| Net sales | $ | 170,448,000 | 147,854,000 | $ | 495,425,000 | 403,154,000 | ||||||||
| Cost of sales | 106,032,000 | 85,418,000 | 311,995,000 | 242,201,000 | ||||||||||
| Gross profit | 64,416,000 | 62,436,000 | 183,430,000 | 160,953,000 | ||||||||||
| Expenses: | ||||||||||||||
| Selling, general and administrative | 33,409,000 | 30,410,000 | 97,243,000 | 86,100,000 | ||||||||||
| Research and development | 13,471,000 | 12,778,000 | 40,664,000 | 39,963,000 | ||||||||||
| Amortization of intangibles | 4,536,000 | 5,269,000 | 13,113,000 | 15,806,000 | ||||||||||
| Settlement of intellectual property litigation | — | — | (3,204,000 | ) | — | |||||||||
| Acquisition plan expenses | 1,704,000 | — | 4,612,000 | — | ||||||||||
| 53,120,000 | 48,457,000 | 152,428,000 | 141,869,000 | |||||||||||
| Operating income | 11,296,000 | 13,979,000 | 31,002,000 | 19,084,000 | ||||||||||
| Other expenses (income): | ||||||||||||||
| Interest expense | 2,159,000 | 2,500,000 | 7,095,000 | 7,607,000 | ||||||||||
| Write-off of deferred financing costs | — | — | 3,217,000 | — | ||||||||||
| Interest (income) and other | (22,000 | ) | 198,000 | (7,000 | ) | 189,000 | ||||||||
| Income before provision for (benefit from) income taxes | 9,159,000 | 11,281,000 | 20,697,000 | 11,288,000 | ||||||||||
| Provision for (benefit from) income taxes | 1,547,000 | 3,071,000 | 1,791,000 | (11,023,000 | ) | |||||||||
| Net income | $ | 7,612,000 | 8,210,000 | $ | 18,906,000 | 22,311,000 | ||||||||
| Net income per share: | ||||||||||||||
| Basic | $ | 0.31 | 0.34 | $ | 0.79 | 0.94 | ||||||||
| Diluted | $ | 0.31 | 0.34 | $ | 0.78 | 0.93 | ||||||||
| Weighted average number of common shares outstanding – basic | 24,192,000 | 23,834,000 | 24,074,000 | 23,819,000 | ||||||||||
|
Weighted average number of common and common equivalent shares outstanding – diluted |
24,330,000 | 24,052,000 | 24,263,000 | 23,999,000 | ||||||||||
| COMTECH TELECOMMUNICATIONS CORP. | |||||||
| AND SUBSIDIARIES | |||||||
|
Condensed Consolidated Balance Sheets |
|||||||
| April 30, 2019 | July 31, 2018 | ||||||
| (Unaudited) | (Audited) | ||||||
| Assets |
|
||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 45,152,000 | 43,484,000 | ||||
| Accounts receivable, net | 142,770,000 | 147,439,000 | |||||
| Inventories, net | 83,034,000 | 75,076,000 | |||||
| Prepaid expenses and other current assets | 18,263,000 | 13,794,000 | |||||
| Total current assets | 289,219,000 | 279,793,000 | |||||
| Property, plant and equipment, net | 29,388,000 | 28,987,000 | |||||
| Goodwill | 310,247,000 | 290,633,000 | |||||
| Intangibles with finite lives, net | 267,097,000 | 240,796,000 | |||||
| Deferred financing costs, net | 3,311,000 | 2,205,000 | |||||
| Other assets, net | 4,225,000 | 2,743,000 | |||||
| Total assets | $ | 903,487,000 | 845,157,000 | ||||
| Liabilities and Stockholders’ Equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 37,225,000 | 43,928,000 | ||||
| Accrued expenses and other current liabilities | 79,744,000 | 65,034,000 | |||||
| Dividends payable | 2,405,000 | 2,356,000 | |||||
| Contract liabilities | 40,759,000 | 34,452,000 | |||||
| Current portion of long-term debt | — | 17,211,000 | |||||
| Current portion of capital lease and other obligations | 1,030,000 | 1,836,000 | |||||
| Interest payable | 515,000 | 499,000 | |||||
| Total current liabilities | 161,678,000 | 165,316,000 | |||||
| Non-current portion of long-term debt, net | 173,500,000 | 148,087,000 | |||||
| Non-current portion of capital lease and other obligations | 435,000 | 765,000 | |||||
| Income taxes payable | 54,000 | 2,572,000 | |||||
| Deferred tax liability, net | 12,117,000 | 10,927,000 | |||||
| Long-term contract liabilities | 10,037,000 | 7,689,000 | |||||
| Other liabilities | 20,717,000 | 4,117,000 | |||||
| Total liabilities | 378,538,000 | 339,473,000 | |||||
| Commitments and contingencies | |||||||
| Stockholders’ equity: | |||||||
|
Preferred stock, par value $0.10 per share; shares authorized and unissued 2,000,000 |
— | — | |||||
|
Common stock, par value $0.10 per share; authorized 100,000,000 |
3,917,000 | 3,886,000 | |||||
| Additional paid-in capital | 546,198,000 | 538,453,000 | |||||
| Retained earnings | 416,683,000 | 405,194,000 | |||||
| 966,798,000 | 947,533,000 | ||||||
| Less: | |||||||
|
Treasury stock, at cost (15,033,317 shares at April 30, 2019 and |
(441,849,000 | ) | (441,849,000 | ) | |||
| Total stockholders’ equity | 524,949,000 | 505,684,000 | |||||
| Total liabilities and stockholders’ equity | $ | 903,487,000 | 845,157,000 | ||||
|
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 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, write-off of deferred financing costs,
interest expense, amortization of stock-based compensation, amortization
of intangible assets, depreciation expense, estimated contract
settlement costs, acquisition plan expenses or strategic alternatives
analysis expenses, facility exit costs, settlement of intellectual
property litigation 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. The
Company’s Non-GAAP measures for consolidated operating income, net
income and net income per diluted share reflect the GAAP measures as
reported, adjusted for certain items as discussed below. 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 tables, 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 2019 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 intangible assets 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 | Nine months ended | Fiscal | ||||||||||||||||
| April 30, | April 30, | Year | ||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2018 | ||||||||||||||
| Reconciliation of GAAP Net Income to Adjusted EBITDA: | ||||||||||||||||||
| Net income | $ | 7,612,000 | 8,210,000 | $ | 18,906,000 | 22,311,000 | $ | 29,769,000 | ||||||||||
| Provision for (benefit from) income taxes | 1,547,000 | 3,071,000 | 1,791,000 | (11,023,000 | ) | (5,143,000 | ) | |||||||||||
| Interest (income) and other | (22,000 | ) | 198,000 | (7,000 | ) | 189,000 | 254,000 | |||||||||||
| Write-off of deferred financing costs | — | — | 3,217,000 | — | — | |||||||||||||
| Interest expense | 2,159,000 | 2,500,000 | 7,095,000 | 7,607,000 | 10,195,000 | |||||||||||||
| Amortization of stock-based compensation | 1,119,000 | 1,104,000 | 3,356,000 | 2,931,000 | 8,569,000 | |||||||||||||
| Amortization of intangibles | 4,536,000 | 5,269,000 | 13,113,000 | 15,806,000 | 21,075,000 | |||||||||||||
| Depreciation | 2,918,000 | 3,170,000 | 8,618,000 | 9,833,000 | 13,655,000 | |||||||||||||
| Estimated contract settlement costs | 2,465,000 | — | 6,351,000 | — | — | |||||||||||||
| Settlement of intellectual property litigation | — | — | (3,204,000 | ) | — | — | ||||||||||||
| Acquisition plan expenses | 1,704,000 | — | 4,612,000 | — | — | |||||||||||||
| Facility exit costs | — | — | 1,373,000 | — | — | |||||||||||||
| Adjusted EBITDA | $ | 24,038,000 | 23,522,000 | $ | 65,221,000 | 47,654,000 | $ | 78,374,000 | ||||||||||
In addition, a reconciliation of Comtech’s GAAP consolidated operating
income, net income and net income per diluted share to the corresponding
non-GAAP measures is shown in the tables below for the three and nine
months ended April 30, 2019 and 2018, and full year of fiscal 2018:
| April 30, 2019 | ||||||||||||||||||||||||
| Three months ended | 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 | ||||||||||||
| April 30, 2018 | ||||||||||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||||||||||
|
Operating |
Net Income |
Net Income |
Operating |
Net Income |
Net Income |
|||||||||||||||||||
| Reconciliation of GAAP to Non-GAAP Earnings: | ||||||||||||||||||||||||
| GAAP measures, as reported | $ | 13,979,000 | $ | 8,210,000 | $ | 0.34 | $ | 19,084,000 | $ | 22,311,000 | $ | 0.93 | ||||||||||||
| Net discrete tax benefit | — | — | — | — | (14,071,000 | ) | (0.59 | ) | ||||||||||||||||
| Non-GAAP measures | $ | 13,979,000 | $ | 8,210,000 | $ | 0.34 | $ | 19,084,000 | $ | 8,240,000 | $ | 0.34 | ||||||||||||
| Fiscal Year | ||||||||||||||||||||||||
| 2018 | ||||||||||||||||||||||||
|
Operating |
Net Income |
Net Income |
||||||||||||||||||||||
| Reconciliation of GAAP to Non-GAAP Earnings: | ||||||||||||||||||||||||
| GAAP measures, as reported | $ | 35,075,000 | $ | 29,769,000 | $ | 1.24 | ||||||||||||||||||
| Net discrete tax benefit | — | (11,792,000 | ) | (0.49 | ) | |||||||||||||||||||
| Non-GAAP measures | $ | 35,075,000 | $ | 17,977,000 | $ | 0.75 | ||||||||||||||||||
* Per share amounts may not foot due to rounding.
ECMTL
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