Melville, NY, June 3, 2020
Comtech Telecommunications Corp. (NASDAQ: CMTL) today reported its operating results for its third fiscal quarter ended April 30, 2020 and provided an update on business developments and the UHP and Gilat acquistions.
Fiscal 2020 Third Quarter Highlights
- Net sales for the third quarter of fiscal 2020 were US$ 135.1 million.
- Bookings during the third quarter of fiscal 2020 were US$ 137.5 million, with a company-wide book-to-bill ratio of 1.02. Backlog as of April 30, 2020 was $640.7 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 $1.0 billion.
- On a GAAP basis, the company reported an operating loss of US$ 3.1 million, a net loss of US$ 4.0 million and a net loss per diluted share ("EPS") of $0.16. Comtech's operating loss was impacted by US$ 6.0 million of acquisition plan expenses and $0.5 million of estimated contract settlement costs. As shown in the table below, excluding acquisition plan expenses, estimated contract settlement costs and a net discrete tax expense of $0.7 million during the quarter, Non-GAAP net income and EPS were US$ 1.2 million and $0.05, respectively. Non-GAAP EPS is a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure below.
- Adjusted EBITDA for the third quarter of fiscal 2020 was US$ 12.5 million, or 9.2% 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.
- Comtech generated GAAP operating cash flows of US$ 7.7 million during the quarter and had $50.6 million of cash and cash equivalents at April 30, 2020.
Business Update: Impact of COVID-19 and Q4 Fiscal 2020 Targets
- Comtech’s third quarter of fiscal 2020, running from February 1 through April 30, 2020, corresponded precisely with the period in which worldwide restrictions on business activities were in force due to the COVID-19 pandemic. As a result, Comtech experienced significant order delays and lower net sales. During the quarter, in response to lower levels of business activity, Comtech implemented a variety of cost saving measures, including reducing global headcount by approximately 10%, reducing salaries, suspending merit increases and eliminating certain discretionary expenses. Severance costs relating to these actions were not material and cost reduction efforts continue.
- Although Comtech is deemed an essential business by the U.S. government, for the safety of its employees, customers, partners and suppliers, it has implemented remote working arrangements, curtailed most business travel, and established social distancing safeguards at its facilities. Comtech expects that such precautions will remain in effect for as long as government advisories recommend.
Other recent developments in Comtech's business include:
- Comtech’s Commercial Solutions segment achieved a book-to-bill ratio of 0.73. Its satellite ground station technologies product line, which has historically required significant in-person meetings to generate new business and finalize sales orders, has been most impacted by restrictions on business activities. With Comtech’s recent deployment of new video sales channel methods and the partial resumption of businesses activities in some places around the world, Comtech believes this product line has started to slowly recover. Importantly, Comtech has been awarded multiple satellite ground station technology solution contracts to support several U.S. Department of Defense (“DoD”) end customers, and has received initial funding for these critical projects that it expects will generate significant revenue for several years. In addition, Comtech believes that demand for its 911 public safety and location technology solutions remains strong and it is in the process of finalizing a number of large multi-year projects. During the quarter, Comtech was also awarded a multi-year contract valued at $9.1 million from a U.S. tier-one mobile network operator for 5G virtual mobile location-based technology solutions, including public safety applications. Additionally, Comtech also launched a new product line website highlighting its public safety and location-based solutions and secured several multi-year contracts valued at more than $15.0 million to deploy new call-handling solutions in the Midwest.
- Comtech’s Government Solutions segment achieved a book-to-bill ratio of 1.41. Although this segment has experienced order and shipment delays, demand for almost all of Comtech’s mission-critical technologies and high-performance transmission technologies remains strong. In particular, it continues to provide Very Small Aperture Terminal (“VSAT”) Satellite Communications Terminals to the U.S. government as well as ongoing sustainment services for several critical programs, including the SNAP and BFT-1 programs. Also, Comtech continues to support the U.S. government’s cyber security posture and received large orders for its Joint Cyber Analysis Course (“JCAC”) training solutions. In June 2020, Comtech announced COMET - the world’s smallest over-the-horizon microwave terminal and received an initial order for the U.S. Special Operations Command. It is also continuing to make significant efforts to win multi-year awards for several large new opportunities with the DoD. During the quarter, Comtech completed the integration of CGC Technology Limited, a leading provider of high precision full motion fixed and mobile X/Y satellite tracking antennas based in the United Kingdom, into its Government Solutions segment and is now working with several top-tier European aerospace companies and other government entities to meet expected long-term growth in LEO and MEO satellite constellations.
- Although the COVID-19 pandemic is by no means over and a second wave of COVID-19 could again alter the business landscape, Comtech believes that the pandemic’s worst impact on its business is largely behind it. Comtech’s long-term fundamentals remain strong as Comtech continues to believe it is well-positioned for growth as business conditions meaningfully improve. Although it has ceased during the current environment to provide specific financial targets for fiscal 2020 and it remains difficult to predict the timing of customer awards and related shipments, Comtech does expect fiscal 2020 fourth quarter consolidated net sales, net income and Adjusted EBITDA to be somewhat better than the results it achieved during the third fiscal quarter. Comtech expects to incur acquisition plan expenses of approximately $3.5 million during the fourth quarter of fiscal 2020.
- Comtech's ability to achieve improved results during the fourth quarter will depend, in large part, on timely deliveries and the receipt of, and its performance on, orders from its customers. Fourth quarter results will be negatively impacted if orders and/or deliveries are delayed, business conditions further deteriorate, or Comtech's current or prospective customers materially postpone, reduce or even forgo purchases of its products and services. Other than for acquisition plan expenses, Comtech's fourth quarter fiscal 2020 business outlook does not include the impact of the pending acquisitions of UHP or Gilat, or the impact of any other expense Comtech may incur in order to achieve its strategic objectives.
In commenting on Comtech’s performance for the third quarter of fiscal 2020, Fred Kornberg, Chairman of the Board and Chief Executive Officer, noted, "No doubt, the third quarter was challenging for Comtech. But I have never been prouder of our employees for their dedication and commitment to our customers. I am exceedingly grateful for the trust our customers continue to place in Comtech’s industry leading technology and expertise. Looking forward, I remain enthusiastic about our efforts on a number of large strategic orders and we are laser focused on positioning the company for a strong fiscal 2021."
Business Update: Acquisition Plan
- In June 2020, Comtech and UHP Networks, Inc., a leading provider of innovative and disruptive satellite ground station technology solutions, agreed to amend the terms of the agreement for Comtech’s purchase of UHP, which was originally announced in November 2019. Under the amended purchase agreement, the total aggregate purchase price has been reduced by approximately 24% from $50.0 million to $38.0 million (of which $5.0 million will be paid in cash, with the remainder in shares of Comtech common stock, cash, or a combination of both, as Comtech may elect at the time of closing). The transaction is subject to customary closing conditions, including necessary regulatory approval to allow Comtech to purchase UHP's sister company which is headquartered in Moscow.
- Comtech’s acquisition of Gilat Satellite Networks Ltd. remains subject to certain conditions to closing, including regulatory approval in Russia. In May 2020, Comtech received notification from the Federal Antimonopoly Service of the Russian Federation that it was extending the review period for Comtech’s application pending a decision under the Foreign Investment Law to determine whether approval is required from the Chairman of the Russian Government Commission for Supervising Foreign Investments.
- During the third quarter of fiscal 2020, Comtech closed an acquisition of NG-911, Inc., a pioneer of Next Generation 911 solutions for public safety agencies in the Midwest. The acquisition allows Comtech to cost-effectively expand sales of its industry leading Solacom Guardian call management solutions for public safety. The financial impact of the acquisition was not material.
