Comtech Telecommunications Corp. Announces Results for Fiscal 2019 First Quarter and Updates Its Fiscal 2019 Guidance

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MELVILLE, N.Y.–(BUSINESS WIRE)–December 6, 2018 Comtech Telecommunications Corp. (NASDAQ:
CMTL) today reported its operating results for the first fiscal quarter
ended October 31, 2018 and updated its fiscal 2019 guidance.

Fiscal 2019 First Quarter Highlights

  • Net sales for the first quarter of fiscal 2019 were $160.8 million as
    compared to the $121.6 million achieved during the first quarter of
    fiscal 2018.
  • Bookings during the first quarter of fiscal 2019 were $157.4 million,
    with a company-wide book-to-bill ratio (a measure defined as bookings
    divided by net sales) of 0.98.
  • Backlog as of October 31, 2018 reflects a near record high of $627.3
    million. Backlog does not include the portions of multi-year contracts
    that have not been funded. As such, the total value of multi-year
    contracts that Comtech has received is substantially higher.
  • Comtech received a number of strategic contracts and orders,
    including: (i) over $28.4 million of orders to supply Manpack
    Satellite Terminals, networking equipment and other advanced VSAT
    products to the U.S. Army; (ii) a $6.8 million contract renewal to
    provide a GPS-enabled application to a key Fortune 100 customer; (iii)
    a strategic contract valued at $5.5 million from a global
    telecommunications and media company to provide virtualized mobile
    service device location platforms supporting various location-based
    services (“LBS”); (iv) $5.4 million of orders to provide ongoing
    sustainment services to the U.S. Army for the AN/TSC-198A SNAP (Secret
    Internet Protocol Router (“SIPR”) and Non-classified Internet Protocol
    Router (“NIPR”) Access Point), Very Small Aperture Terminals
    (“VSATs”); (v) a multi-year $1.9 million order from a top U.S. telecom
    service provider for hosted data assistance services related to the
    delivery of LBS; and (vi) a multi-year contract extension totaling
    $1.2 million to provide Federal Communications Commission (“FCC”)
    mandated enhanced 911 (“E911”) and emergency call routing services to
    a U.S. wireless carrier.
  • GAAP operating income of $7.3 million, GAAP net income of $3.5 million
    and GAAP diluted earnings per share of $0.14 was impacted by several
    steps taken by Comtech to improve operating efficiencies and make
    progress towards achieving its long-term business goals. As presented
    in more detail in the below table, these steps include: (i)
    successfully consolidating a manufacturing facility located in Tampa,
    Florida with its facility in Orlando, Florida; (ii) initiating a
    targeted acquisition plan related to a small but growing technology
    solutions company; (iii) entering a new $550.0 million Credit Facility
    that is intended to provide increased balance sheet flexibility,
    improved interest rate pricing and less restrictive covenants as
    compared to its prior credit facility; and (iv) recording a net
    discrete tax benefit primarily related to the favorable resolution
    with the Internal Revenue Service (“IRS”) with respect to their audit
    of its fiscal 2016 federal income tax return. Excluding the impact of
    these steps, operating income would have been $9.8 million, net income
    would have been $5.5 million and earnings per diluted share would have
    been $0.22.
  • Adjusted EBITDA was $18.0 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.

In commenting on Comtech’s performance for the first quarter of fiscal
2019, Fred Kornberg, President and Chief Executive Officer, noted,
“Fiscal 2019 is off to a great start. Our results for the first quarter
exceeded our expectations and our pipeline of opportunities remains
strong. Based on our outstanding first quarter performance, we are
increasing our targeted goals for consolidated net sales and Adjusted
EBITDA and expect fiscal 2019 to be another successful year.”

Updated 2019 Fiscal Year Financial Targets

  • Comtech is increasing its fiscal 2019 consolidated net sales goal to a
    range of approximately $625.0 million to $640.0 million as compared to
    the prior range of $600.0 million and $625.0 million.
  • Comtech’s updated GAAP net income per diluted share (“EPS”) target for
    fiscal 2019 is now $0.95 to $1.08. This GAAP EPS metric reflects all
    facility exit costs, acquisition plan expenses, write-off of deferred
    financing costs and net discrete tax benefits.
  • Comtech is increasing its Adjusted EBITDA goal to a range of $84.0
    million to $88.0 million. If order flow remains strong and Comtech can
    achieve all of its fiscal 2019 business goals, it is possible that
    financial results could be higher than its targeted amounts.
  • Although Comtech’s GAAP consolidated operating income and adjusted
    EBITDA in the second half of fiscal 2019 are still expected to be
    higher than the first half of fiscal 2019, it now expects a more
    balanced year. In this regard, Comtech’s second quarter consolidated
    net sales, operating income and Adjusted EBITDA are expected to be
    nearly the same as its first quarter of fiscal 2019. Comtech’s third
    quarter results for fiscal 2019 are expected to be better than its
    expected results for the second quarter of fiscal 2019. Comtech still
    expects its fourth quarter of fiscal 2019 to be the peak quarter for
    consolidated net sales, operating income and Adjusted EBITDA.
    Comtech’s updated 2019 fiscal year financial targets include a number
    of items, the timing of which can still shift and impact its quarterly
    financial performance. However, Comtech currently does not believe
    that changes in such timing would negatively impact its ability to
    achieve its updated 2019 fiscal year financial targets.
  • Despite incurring facility exit costs and acquisition plan expenses,
    Comtech anticipates GAAP consolidated operating income, both in
    dollars and as a percentage of consolidated net sales, to be higher
    than the $35.1 million or 6.2% it achieved in fiscal 2018.
  • Comtech’s estimated effective income tax rate for fiscal 2019
    (excluding net discrete items) is now expected to approximate 22.75%.
  • Comtech’s acquisition plan efforts related to a small but growing
    technology solutions company are ongoing and it currently expects to
    incur approximately $1.0 million of additional expenses in the second
    quarter of fiscal 2019. Comtech anticipates making an announcement
    related to this potential acquisition in the near term. There is no
    certainty that Comtech’s acquisition efforts will be successful and
    except for the impact of acquisition plan expenses, its updated 2019
    fiscal year financial targets do not include any impact of such
    acquisition.

Additional information about Comtech’s first 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 first 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
Friday, December 7, 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 (877)
876-9176 (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) 695-0671 or (402) 220-1397. 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™ 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 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 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 October 31,
2018     2017
 
Net sales $ 160,844,000 $ 121,569,000
Cost of sales 103,075,000   73,853,000  
Gross profit 57,769,000   47,716,000  
 
Expenses:
Selling, general and administrative 31,847,000 28,475,000
Research and development 13,210,000 13,750,000
Amortization of intangibles 4,289,000 5,269,000
Acquisition plan expenses 1,130,000    
50,476,000   47,494,000  
 
Operating income 7,293,000 222,000
 
Other expenses:
Interest expense 2,669,000 2,588,000
Write-off of deferred financing costs 3,217,000
Interest (income) and other 66,000   39,000  
 
Income (loss) before benefit from income taxes 1,341,000 (2,405,000 )
Benefit from income taxes (2,127,000 ) (745,000 )
 
Net income (loss) $ 3,468,000   $ (1,660,000 )
 
Net income (loss) per share:
Basic $ 0.14   $ (0.07 )
Diluted $ 0.14   $ (0.07 )
 
Weighted average number of common shares outstanding – basic 23,999,000   23,797,000  
 
Weighted average number of common and common equivalent shares
outstanding – diluted
24,375,000   23,797,000  
 
       

COMTECH TELECOMMUNICATIONS CORP.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 
October 31, 2018 July 31, 2018
(Unaudited) (Audited)
Assets

 

Current assets:
Cash and cash equivalents $ 42,943,000 43,484,000
Accounts receivable, net 159,255,000 147,439,000
Inventories, net 89,569,000 75,076,000
Prepaid expenses and other current assets 13,133,000   13,794,000  
Total current assets 304,900,000 279,793,000
Property, plant and equipment, net 28,543,000 28,987,000
Goodwill 290,633,000 290,633,000
Intangibles with finite lives, net 236,507,000 240,796,000
Deferred financing costs, net 3,678,000 2,205,000
Other assets, net 2,679,000   2,743,000  
Total assets $ 866,940,000   845,157,000  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 35,340,000 43,928,000
Accrued expenses and other current liabilities 68,809,000 65,034,000
Dividends payable 2,381,000 2,356,000
Contract liabilities 34,460,000 34,452,000
Current portion of long-term debt 17,211,000
Current portion of capital lease and other obligations 1,579,000 1,836,000
Interest payable 26,000   499,000  
Total current liabilities 142,595,000 165,316,000
Non-current portion of long-term debt, net 193,400,000 148,087,000
Non-current portion of capital lease and other obligations 586,000 765,000
Income taxes payable 407,000 2,572,000
Deferred tax liability, net 13,200,000 10,927,000
Long-term contract liabilities 6,813,000 7,689,000
Other liabilities 3,843,000   4,117,000  
Total liabilities 360,844,000 339,473,000
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $.10 per share; shares authorized and
unissued 2,000,000
Common stock, par value $0.10 per share; authorized 100,000,000
shares; issued 38,938,844 shares and 38,860,571 shares at October
31, 2018 and July 31, 2018, respectively
3,894,000 3,886,000
Additional paid-in capital 537,852,000 538,453,000
Retained earnings 406,199,000   405,194,000  
947,945,000 947,533,000
Less:

Treasury stock, at cost (15,033,317 shares at October 31, 2018 and
July 31, 2017)

 

(441,849,000 ) (441,849,000 )
Total stockholders’ equity 506,096,000   505,684,000  
Total liabilities and stockholders’ equity $ 866,940,000   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 intangibles, depreciation expense, 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 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 October 31, Fiscal Year
2018     2017 2018
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA:
Net income (loss) $ 3,468,000 (1,660,000 ) $ 29,769,000
Benefit from income taxes (2,127,000 ) (745,000 ) (5,143,000 )
Interest (income) and other 66,000 39,000 254,000
Write-off of deferred financing costs 3,217,000
Interest expense 2,669,000 2,588,000 10,195,000
Amortization of stock-based compensation 1,046,000 747,000 8,569,000
Amortization of intangibles 4,289,000 5,269,000 21,075,000
Depreciation 2,851,000 3,346,000 13,655,000
Acquisition plan expenses 1,130,000
Facility exit costs 1,373,000      
Adjusted EBITDA $ 17,982,000   9,584,000   $ 78,374,000  
 

In addition, a reconciliation of Comtech’s GAAP consolidated operating
income, net income and net income per diluted share for the three months
ended October 31, 2018 to the corresponding non-GAAP measures is shown
in the table below:

   
Three months ended October 31, 2018

Operating
Income

    Net Income    

Net Income per
Diluted Share

Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported $ 7,293,000 $ 3,468,000 $ 0.14
Facility exit costs 1,373,000 1,061,000 0.04
Acquisition plan expenses 1,130,000 873,000 0.04
Write-off of deferred financing costs 2,485,000 0.10
Net discrete tax benefit   (2,432,000 ) (0.10 )
Non-GAAP measures $ 9,796,000   $ 5,455,000   $ 0.22  
 

ECMTL

Contacts

Media Contacts:
Michael D. Porcelain, Senior Vice President
and Chief Operating Officer
(631) 962-7000
Info@comtechtel.com

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