Comtech Telecommunications Corp. announces results for Its fiscal 2020 first quarter and updates fis
Comtech Telecommunications Corp. has reported its operating results for the first fiscal quarter ended October 31, 2019 and updated its fiscal 2020 guidance.
Fiscal 2020 First Quarter Highlights
Net sales for the first quarter of fiscal 2020 were $170.3 million as compared to the $160.8 million achieved during the first quarter of fiscal 2019, representing an increase of $9.5 million, or 5.9%.
Bookings during the first quarter of fiscal 2020 were $135.6 million, with a company-wide book-to-bill ratio of 0.80. Backlog as of October 31, 2019 was $648.3 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.
In October 2019, Comtech announced that the U.S. Army awarded it a contract with a $98.6 million ceiling to provide global field support services for military satellite communication (SATCOM) terminals around the world. The field support contract covers diverse engineering and technical skills to support these SATCOM terminals, including logistics, help desk, network engineering, security engineering, RF and satellite system engineering and support. As of the end of Comtech’s first quarter of fiscal 2020, the contract has been funded at $24.4 million with additional funding expected to occur across the twelve-month performance period plus a possible six-month extension period.
In November 2019, the U.S. government announced that Comtech's teaming partner on a U.S. Marine Corps troposcatter opportunity was awarded a 10-year $325.0 million “IDIQ” contract to provide 172 next-generation troposcatter systems and related services. The teaming partner announced that it intends to subcontract the manufacture and delivery of these troposcatter systems to Comtech and the Company is currently negotiating contract terms and expects its initial order soon.
In November 2019, Comtech announced that it entered into an agreement to acquire UHP Networks Inc. and its sister company, a leading provider of innovative and disruptive satellite ground station solutions, for a purchase price of approximately $40.0 million. The transaction is subject to customary closing conditions and is expected to occur late in the second half of Comtech's fiscal 2020.
During the first quarter of fiscal 2020, Comtech's operating income was impacted by $2.4 million of acquisition plan expenses and $0.2 million of estimated contract settlement costs.
Excluding a $0.6 million net discrete tax benefit primarily related to stock based awards settled during the quarter, Comtech’s effective tax rate for the first quarter of fiscal 2020 was 23.0%.
On a GAAP basis, first quarter fiscal 2020 operating income was $9.3 million, net income was $6.4 million and net income per diluted share ("EPS") was $0.26. As shown in the table below, excluding acquisition plan expenses, estimated contract settlement costs and a net discrete tax benefit during the quarter, Non-GAAP EPS was $0.32.
Adjusted EBITDA for the first quarter of fiscal 2020 was $20.6 million, or 12.1% of consolidated net sales as compared to the $18.0 million, or 11.2% of consolidated net sales achieved in the first quarter of fiscal 2019, representing an increase of $2.6 million, or 14.4%. 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 commenting on Comtech’s performance for the first quarter of fiscal 2020, Fred Kornberg, President and Chief Executive Officer, noted, "Fiscal 2020 is off to a great start and our first quarter results exceeded our expectations. We continue to have clear visibility, lots of optimism and are excited about our future. Our pipeline of opportunities remains strong and we are tracking a number of strategic orders that bode well for our future. Based on our current business momentum, fiscal 2020 is beginning to look like a very strong year.”
Updated 2020 Fiscal Year Financial Targets
Comtech is increasing its consolidated net sales target to a new range of approximately $712.0 million to $732.0 million as compared to the prior range of $710.0 million to $730.0 million.
Comtech is increasing its Adjusted EBITDA goal to a new range of $99.0 million to $103.0 million as compared to the prior range of $98.0 million to $102.0 million. Comtech's Adjusted EBITDA goal reflects a target of approximately 14.0% of its expected fiscal 2020 consolidated net sales.
Despite incurring $2.4 million of acquisition plan expenses and $0.2 million of estimated contract settlement costs in the first quarter of fiscal 2020, as well as an additional $2.4 million of such costs expected during the second quarter of fiscal 2020, GAAP operating income, as a percentage of the consolidated net sales, is still expected to approximate 7.0%. Excluding such expenses, operating income, as a percentage of fiscal 2020 consolidated net sales, is expected to approximate 7.7%.
There is no change to Comtech's expected interest expense rate (including amortization of deferred financing costs) of approximately 4.6% or total interest expense of approximately $7.5 million. Comtech's current and fiscal 2020 expected cash borrowing rate is approximately 4.0%.
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 range for fiscal 2020 is $1.28 to $1.42. This GAAP EPS metric reflects all actual and expected second quarter fiscal 2020 acquisition plan expenses, estimated contract settlement costs and discrete tax items. Excluding actual and expected second quarter fiscal 2020 acquisition plan expenses, estimated contract settlement costs and discrete tax items, Non-GAAP EPS is now expected to approximate $1.42 to $1.56, which is an increase from Comtech's previous targeted range of $1.35 to $1.50.
Consistent with Comtech's business cycle for the past several years, Comtech's financial performance in the second half of fiscal 2020 is anticipated to be higher than the first half. Based on anticipated product mix and timing assumptions, Comtech expects its second quarter consolidated net sales to range from $168.0 million to $170.0 million, with Adjusted EBITDA ranging from $19.0 million to approximately $21.0 million. 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 fiscal 2020 targets reflect several items, the timing of which could shift and impact Comtech's expected quarterly financial performance. In addition, the aforementioned fiscal 2020 financial targets do not include the impact of the pending acquisition of UHP or the impact of any other expense Comtech may incur in order to achieve its strategic objectives. If Comtech achieves all of its fiscal 2020 business goals, it is possible that financial results could be higher than its targeted amounts.
Additional information about Comtech’s first quarter financial results and Business Outlook for Fiscal 2020 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.
The Company has scheduled an investor conference call for 4:30 PM (ET) on Wednesday, December 4, 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.