Comtech Reports Net sales for 2Q of fiscal 2020 of US$ 161.7 million
Melville, NY, March 4, 2020-- Comtech Telecommunications Corp. (NASDAQ: CMTL) today reported its operating results for the second fiscal quarter ended January 31, 2020 and updated its fiscal 2020 guidance. The company reported net sales for the second quarter of fiscal 2020 were $161.7 million.
Fiscal 2020 Second Quarter Highlights
- Net sales for the second quarter of fiscal 2020 were $161.7 million.
- Bookings during the second quarter of fiscal 2020 were $151.6 million, with a company-wide book-to-bill ratio of 0.94. Backlog as of January 31, 2020 was $638.3 million. When adding Comtech's backlog and the total unfunded value of certain multi-year contracts that Comtech has received and for which it expects future orders, its revenue visibility approximates $1.0 billion.
- During the second quarter, Comtech was awarded several large contracts, including: a 10-year, $211.0 million IDIQ contract to provide next generation troposcatter systems for end use by the U.S. Marine Corps, with initial funding received to-date of $13.4 million; a multi-year contract extension totaling an estimated $14.2 million to provide enhanced 911 services to a tier one U.S. wireless telecommunications carrier; a contract valued at more than $8.8 million for Ka-band solid-state amplifiers to be used in an in-flight connectivity satcom application; and a contract worth $6.6 million to upgrade a next generation 911 system for a New England state.
- On a GAAP basis, second quarter fiscal 2020 operating income was $6.2 million, net income was $3.5 million and net income per diluted share ("EPS") was $0.14. During the second quarter, Comtech's operating income was impacted by $6.0 million of acquisition plan expenses and a $0.3 million benefit from the reversal of certain estimated contract settlement costs. As shown in the table below, excluding those acquisition plan expenses, the benefit from the reversal of certain estimated contract settlement costs and the net discrete tax expense during the quarter, Non-GAAP EPS was $0.32. Non-GAAP EPS is a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure below.
- Adjusted EBITDA for the second quarter of fiscal 2020 was $21.2 million, or 13.1% of consolidated net sales. 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.
- In late January 2020, Comtech announced the completion of its acquisition of CGC Technology Limited ("CGC") for approximately $23.7 million. CGC is a leading provider of high precision full motion fixed and mobile X/Y satellite tracking antennas, reflectors, radomes and other ground station equipment around the world. With significant growth in low Earth orbit ("LEO") and medium Earth orbit ("MEO") satellite constellations expected, the acquisition adds another growth dynamic to Comtech and brings established relationships with several top-tier European aerospace companies and other government entities.
- In January 2020, Comtech announced its highly strategic acquisition of Gilat Satellite Networks Ltd. ("Gilat") in a cash and stock transaction, resulting in an enterprise value of approximately $532.5 million. Each Gilat ordinary share will be converted into the right to receive consideration of $7.18 in cash, without interest, plus 0.08425 of a share of Comtech common stock, with cash payable in lieu of fractional shares. Gilat is a worldwide leader in satellite networking technology, solutions and services, with market leading positions in the satellite ground station and in-flight connectivity solutions markets and deep expertise in operating large network infrastructures. The transaction is subject to customary closing conditions including, among others, the approval of Gilat’s shareholders and the expiration of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976.
In commenting on Comtech’s performance for the second quarter of fiscal 2020, Fred Kornberg, Chairman of the Board and Chief Executive Officer, noted, "Our operating results for the second quarter were solid, with strong performance on the bottom line. Despite the sudden and unexpected deterioration in macroeconomic and business conditions caused by the coronavirus, Comtech performed admirably well and we continue to track a number of large strategic orders that bode well for our future." Mr. Kornberg added, "We are very excited about our recently announced acquisitions and our attention is firmly focused on carefully planning our acquisition integration efforts and positioning the combined companies for a strong fiscal 2021, as we wait for general business conditions to improve."
Updated 2020 Fiscal Year Financial Targets
Comtech’s Updated 2020 Fiscal Year Financial Targets reflect its assumption that the sudden and unexpected deterioration in macroeconomic and business conditions caused by the coronavirus are temporary and that conditions will significantly improve during the second half of Comtech’s fiscal 2020. To-date, the largest business impact of the coronavirus has been felt in Comtech's satellite ground station technologies product line which has and continues to experience order delays with many of its sales and marketing personnel unable to meet with potential customers. The rest of Comtech's product lines have yet to be impacted and Comtech is in active negotiations with two large public safety agencies for multi-year next-generation 911 contracts that it hopes will be awarded soon. However, there remains significant uncertainty and if current poor business conditions including travel restrictions and order delays continue longer than expected, fiscal 2020 deliveries and or opportunities in Comtech’s pipeline could shift into fiscal 2021.
- Comtech's consolidated net sales target is now approximately $712.0 million, as compared to the prior range of $712.0 million to $732.0 million.
- Comtech's Adjusted EBITDA goal is now $99.0 million as compared to the prior range of $99.0 million to $103.0 million. Comtech's Adjusted EBITDA goal reflects a target of approximately 14.0% of its target consolidated net sales.
- Despite incurring $8.4 million of acquisition plan expenses and a $32,000 benefit related to the reversal of certain estimated contract settlement costs in the first half of fiscal 2020, as well as an additional $3.6 million of such costs expected during the third quarter of fiscal 2020, GAAP operating income, as a percentage of consolidated net sales, is expected to approximate 6.0%. Excluding such net expenses, operating income, as a percentage of fiscal 2020 consolidated net sales, is expected to approximate 7.5%.
- Comtech's interest expense rate (including amortization of deferred financing costs) is now expected to approximate 4.5% and its total interest expense is now expected to approximate $7.0 million. Comtech's current and fiscal 2020 expected cash borrowing rate is approximately 3.5% to 3.75%.
- Comtech’s effective income tax rate (excluding discrete tax items) for each of the remaining quarters of fiscal 2020 is expected to approximate 23.0%.
- Comtech’s updated GAAP EPS target for fiscal 2020 is $1.08. This GAAP EPS metric reflects all actual and expected third quarter fiscal 2020 acquisition plan expenses, the benefit from the reversal of certain estimated contract settlement costs and net discrete tax items. Excluding actual and expected third quarter fiscal 2020 acquisition plan expenses, the benefit from the reversal of certain estimated contract settlement costs and net discrete tax items, Non-GAAP EPS is now expected to approximate $1.42, as compared to Comtech's previous targeted range of $1.42 to $1.56.
- Given Comtech’s current expectations of the economic fallout resulting from the coronavirus, Comtech expects its third quarter consolidated net sales to range from $150.0 million to $155.0 million, with Adjusted EBITDA ranging from $16.0 million to $18.0 million, before significantly rebounding in the fourth quarter of fiscal 2020. As such, Comtech’s fourth quarter of fiscal 2020 is still expected to be the peak quarter - by far - for its consolidated net sales, GAAP operating income, GAAP net income and Adjusted EBITDA. Comtech’s updated fiscal 2020 financial targets reflect several large items expected to be shipped during the second half of fiscal 2020, the timing of which could shift into fiscal 2021.
Comtech's Updated 2020 Fiscal Year Financial Targets reflect significant uncertainty resulting from the coronavirus. If current poor business conditions including travel restrictions and order delays continue, fiscal 2020 deliveries and or opportunities in Comtech's pipeline could shift into fiscal 2021.
The aforementioned fiscal 2020 financial targets do not include the impact of the pending acquisitions of UHP and Gilat or the impact of any other expense Comtech may incur in order to achieve its strategic objectives.
Related Articles:
Comtech Telecommunications Corp. Promotes Michael Porcelain to President
Comtech Telecommunications Corp. to Acquire Gilat Satellite Networks for US$ 532.5 Million
Comtech EF Data Receives US$ 4.0 Million Delivery Order for Satellite Earth Station Equipment
