Comtech Telecommunications Corp. today reported its operating results for the fourth quarter and fiscal year ended July 31, 2021. The company also provided its initial financial targets for fiscal 2022 and announced a senior leadership transition.
Fiscal 2021 fourth quarter highlights
Consolidated net sales for the fourth quarter of fiscal 2021 were $145.8 million, GAAP net income was US$7.4 million and Adjusted EBITDA was US$26.4 million (or 18.1 percent of consolidated net sales). Adjusted EBITDA exceeded the company's expectation for the quarter and drove a strong finish to fiscal 2021. Consolidated net sales for the fourth quarter of fiscal 2020 were US$149.7 million, GAAP net income was US$1.1 million and Adjusted EBITDA was $23.5 million (or 15.7 percent of consolidated net sales). Adjusted EBITDA is a non-GAAP financial measure that is reconciled to the most directly comparable GAAP financial measure and is more fully defined below.
New bookings for the fourth quarter of fiscal 2021 were US$168.2 million, which enabled the company to achieve a book-to-bill ratio (a measure defined as bookings divided by net sales) of 1.15. Key bookings received include multi-year contracts valued at US$23.5 million and US$23.0 million to deploy and operate next generation 911 (NG-911) services for the states of Arizona and Iowa, respectively. In addition, in connection with a multi-year contract award, Comtech received an initial US$13.0 million order from a large new customer to customize Comtech’s next-generation broadband satellite technology that can be used with thousands of Low Earth Orbit (LEO) satellites reportedly being launched over the next several years. Comtech's backlog and the total unfunded value of multi-year contracts received, for which it expects future orders, provides revenue visibility to over US$1.1 billion, excluding potential future orders from this large new customer that could amount to hundreds of millions of dollars.
GAAP operating income in the fourth quarter of fiscal 2021 was US$9.7 million and GAAP net income per diluted share (EPS) was US$0.28. GAAP operating income in the fourth quarter of fiscal 2020 was US$2.8 million and GAAP EPS was US$0.04.
Non-GAAP operating income in the fourth quarter of fiscal 2021 was US$12.2 million, Non-GAAP net income was US$6.2 million and Non-GAAP EPS was US$0.23. Non-GAAP operating income in the fourth quarter of fiscal 2020 was US$9.2 million, Non-GAAP net income was US$5.2 million and Non-GAAP EPS was US$0.21. Non-GAAP amounts exclude acquisition plan expenses, restructuring costs, COVID-19 related costs, the impact from the change in the non-GAAP effective tax rate based on the full fiscal year results and a net discrete tax expense. Non-GAAP amounts are reconciled to the most directly comparable GAAP financial measures in the table below.
Comtech generated GAAP operating cash flows of US$15.9 million during the fourth quarter. As of July 31, 2021, cash and cash equivalents were US$30.9 million, total debt outstanding was $201.0 million and its Secured Leverage Ratio (as calculated under its existing Credit Facility) was 2.53x.
Fiscal 2021 highlights
Consolidated net sales for fiscal 2021 were US$581.7 million, which reflects twelve months of navigating through the challenges of operating a global business during a period when COVID-19 significantly impacted Comtech’s customer base. Consolidated net sales for fiscal 2020 were US$616.7 million, which reflects six months of operating its business during the initial COVID-19 outbreak.
Fiscal 2021 bookings were US$623.1 million and backlog at year-end was US$658.9 million, or US$38.0 million higher than fiscal 2020 ending backlog. The fiscal 2021 bookings level translates into a book-to-bill ratio of 1.07, an increase over the book-to-bill ratio of 0.95 achieved in fiscal 2020. During fiscal 2021, Comtech was awarded multi-year contracts aggregating over US$200.0 million to deploy and operate next generation 911 (NG-911) services for various states and a multi-year contract with a large new customer to customize Comtech’s next-generation broadband satellite technology. Potential future orders from this customer could amount to hundreds of millions of dollars.
In fiscal 2021, Comtech was recognized by Frost & Sullivan, a leading industry research firm, for achieving the most significant year-over-year market share increase among all NG-911 primary contract holders. Additionally, Northern Sky Research, a leading consulting firm, recognized Comtech as a leader in the growing satellite cellular backhaul market. Comtech believes these independent validations confirm the company’s market leadership positions.
For fiscal 2021, Comtech reported a GAAP operating loss of US$68.3 million, a GAAP net loss of US$73.5 million and a GAAP net loss per diluted share of US$2.86. Fiscal 2021 GAAP financial results were significantly impacted by acquisition plan expenses (including a US$70.0 million payment to terminate an acquisition during the COVID-19 pandemic). For fiscal 2020, Comtech reported GAAP operating income of US$15.2 million, GAAP net income of US$7.0 million and GAAP EPS of US$0.28.
Non-GAAP operating income in fiscal 2021 was US$36.1 million, Non-GAAP net income was US$22.4 million and non-GAAP EPS was US$0.86. Despite being impacted by COVID-19 for the full fiscal year, fiscal 2021 Non-GAAP net income and Non-GAAP EPS represent substantial improvements as compared to fiscal 2020. Non-GAAP operating income in the prior year was US$36.4 million, Non-GAAP net income was US$19.2 million and Non-GAAP EPS was US$0.77. Non-GAAP amounts exclude acquisition plan expenses, restructuring costs, COVID-19 related costs, strategic emerging technology costs for next-generation satellite technology, interest expense associated with the termination of a financing commitment letter for a terminated acquisition, estimated contract settlement costs and net discrete tax items. Non-GAAP amounts are reconciled to the most directly comparable GAAP financial measures in the table below.
Adjusted EBITDA was US$76.5 million, which was above the high end of the company’s prior guidance. Adjusted EBITDA as a percentage of consolidated net sales was 13.2 percent, which was higher than the 12.6 percent achieved in fiscal 2020. Adjusted EBITDA is reconciled to the most directly comparable GAAP financial measure and is more fully defined below.
Commenting on the company's fourth quarter fiscal 2021 performance, Fred Kornberg, Chairman of the Board and Chief Executive Officer, stated, “Our fiscal 2021 results demonstrate our success in executing our strategic plan, the strong market leadership positions we have, and the resilience of our business. We navigated challenging market conditions and delivered strong financial performance, with significant year-over-year bookings and backlog growth. We have visibility to over US$1.1 billion of future revenue, and that does not include opportunities associated with our new large next-generation satellite technologies customer, which could amount to several hundreds of millions of dollars of incremental future revenue. Adding to our strength, we won over US$200.0 million of new NG-911 contract awards that we believe can provide years of recurring revenue. Our achievements and prospects confirm that we have the right strategy, team and focus to create long-term value for our shareholders for many years ahead.”
Initial financial targets for fiscal 2022
With COVID-19 continuing to impact global markets and supply chains, reliable forecasting remains challenging. Against that background, Comtech offers the following views on fiscal 2022:
Comtech is targeting to achieve fiscal 2022 net sales within a range of US$580.0 million to US$600.0 million and Adjusted EBITDA between US$70.0 million and $76.0 million. This guidance reflects the strength of the company’s backlog and a strong sales pipeline, offset by the lingering impacts of COVID-19, timing considerations associated with tightening global supply chain constraints and start-up costs associated with the opening of two new high-volume technology manufacturing facilities. In addition, its fiscal 2022 financial targets reflect the impact of the recently completed withdrawal of US troops from Afghanistan and other US government program changes.
Net sales in the Commercial Solutions segment are expected to increase in fiscal 2022 as compared to fiscal 2021, driven by increased demand for its NG-911 solutions and satellite earth station products. Fiscal 2022 will also benefit from a full twelve months of sales of its new revolutionary TDMA satellite network platform that it acquired in March 2021. Expected sales and earnings contributions in this segment reflect a cautious view that recent spikes in COVID-19 infection rates and global supply chain disruptions will suppress orders from many international end customers and impact the timing of deliveries and installations. Global supply chain constraints have become more prevalent in recent months, with lead times for certain parts extending meaningfully. The company is closely monitoring its inventory needs and supplier base, but these constraints represent a significant performance headwind. Recent spikes in COVID-19 and supply chain issues are expected to result in lower than typical revenues and Adjusted EBITDA for this segment during the first half of fiscal 2022. The company cautiously anticipates that supply chain constraints will ease during the second half of its fiscal 2022.
Net sales in the Government Solutions segment are expected to be lower in fiscal 2022 as compared to fiscal 2021, primarily due to the impact of the full withdrawal of US troops from Afghanistan, as well as other US government program changes. Revenues in this segment for each of the first three quarters of fiscal 2022 are expected to be slightly lower than the US$46.6 million achieved during the fourth quarter of fiscal 2021. Thereafter, the Government Solutions segment is expected to benefit from higher margin programs, including the receipt of new orders for the Comtech COMETTM and other troposcatter solutions.
On a consolidated basis, financial performance in the first half of fiscal 2022 is expected to be significantly lower than the comparative period of fiscal 2021, with the company’s second half of fiscal 2022 expected to be significantly higher than the comparative period of fiscal 2021. The company expects its first quarter of fiscal 2022 to be the lowest quarter of consolidated financial performance, with quarterly results expected to build sequentially throughout the year, with the fourth quarter being the peak quarter by far.
Work on the company’s US$13.0 million order from a large new customer for next-generation broadband satellite technology is well underway. Although its fiscal 2022 financial targets do not include any revenue beyond this initial order, the company believes that potential future orders under its contract with this customer could amount to hundreds of millions of dollars.
Comtech plans to make significant capital expenditures to build-out cloud-based computer networks to support its previously announced NG-911 contract wins for the states of Pennsylvania, South Carolina and Arizona. The company also expects to make investments in capital equipment and tenant improvements in connection with the opening of a new 146,000 square foot facility in Chandler, Arizona and the establishment of a new 56,000 square foot facility in Basingstoke, United Kingdom. Both new manufacturing centers are expected to support production of next-generation broadband satellite technology and be operational by the end of fiscal 2022 or early fiscal 2023. Aggregate capital investments for these and other initiatives in fiscal 2022 are expected to approximate $30.0 million.
GAAP operating income in fiscal 2022 will be impacted by both start-up manufacturing expenses and restructuring costs associated with the opening of Comtech’s two new high-volume technology manufacturing centers, as well as COVID-19 related costs. Global supply chain issues make the amount and timing of these expenses difficult to predict. In addition, GAAP operating income in fiscal 2022 is likely to be impacted by greater than normal proxy solicitation costs, as well as expenses associated with the appointment of a new CEO, as further discussed below. Because the amount and timing of these costs remain largely unpredictable, the company is not providing any GAAP operating income, GAAP net income or any GAAP EPS guidance or a reconciliation of the company’s projected results to the most comparable GAAP measure, as such a reconciliation cannot be prepared without unreasonable effort. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.
Senior leadership transition
Earlier today, as more fully described in a separate press release, Comtech also announced that its Board of Directors has appointed Michael D. Porcelain, Comtech’s President and Chief Operating Officer, to be Chief Executive Officer, taking over from Fred Kornberg after a short transition period. The change of leadership is expected to occur by the end of calendar 2021, at which point Mr. Porcelain will also join Comtech’s Board of Directors and also continue as President. Mr. Kornberg will serve as non-executive Chairman of the Board and is expected to take on a technology advisory role.
Conference call
An updated investor presentation, including earnings guidance, is available on the company's website. The company has scheduled an investor conference call for 4:30 PM (ET) on Monday, October 4, 2021. Investors and the public are invited to access a live webcast of the conference call from the Investor Relations section of the Comtech website.
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