Comtech Telecommunications Corp. today reported its operating results for the fourth quarter and fiscal year ended July 31, 2019. The Company also announced financial targets for its 2020 fiscal year.
2019 Fourth Quarter and Fiscal Year Highlights
Net sales for the fourth quarter of fiscal 2019 were $176.4 million as compared to $167.4 million achieved during the fourth quarter of fiscal 2018, representing an increase of $9.0 million, or 5.4%. Net sales for fiscal 2019 were $671.8 million as compared to $570.6 million achieved during fiscal 2018, representing a significant increase of $101.2 million, or 17.7%.
Bookings during fiscal 2019 were $724.1 million, with a company-wide book-to-bill ratio of 1.08 and Comtech finished the year with backlog of $683.0 million. When adding Comtech's backlog and the total unfunded value of multi-year contracts that Comtech has actually received and for which it expects future orders, its revenue visibility approximates $1.0 billion.
On a GAAP basis, fourth quarter fiscal 2019 operating income was $10.4 million, net income was $6.1 million and earnings per diluted share ("EPS") was $0.25. As shown in the table below, excluding acquisition plan expenses of $1.3 million or $0.04 per diluted share, Non-GAAP EPS was $0.29. Fiscal 2019 operating income was $41.4 million, net income was $25.0 million and EPS was $1.03. As shown in the table below, Non-GAAP EPS in fiscal 2019 was $1.34.
Adjusted EBITDA for the fourth quarter of fiscal 2019 was $28.3 million. Adjusted EBITDA for fiscal 2019 was $93.5 million as compared to the $78.4 million achieved during fiscal 2018, representing a significant increase of $15.1 million, or 19.3%. 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.
During the fourth quarter of fiscal 2019, Comtech generated strong cash flows from operating activities of $14.2 million. Cash flows from operating activities in fiscal 2019 were $68.0 million.
In commenting on the Company's performance, Fred Kornberg, President and Chief Executive Officer, noted, “The fourth quarter was an outstanding finish to a very successful year for Comtech. We generated robust financial results across the board and finished the year with a healthy backlog. We exceeded the guidance that we provided at the beginning of the year, completed two small complementary acquisitions and positioned Comtech for an even better fiscal 2020.”
Mr. Kornberg further added, “At this point, we have clear visibility, lots of optimism and have strong business momentum. We believe that in an environment of increasing market demand for global voice, video and data usage, customers will increasingly turn to us to fulfill their needs for secure wireless communications. With that wind to our backs, I am confident that Comtech will continue to strengthen its market leadership positions and grow for many years ahead.”
2020 Fiscal Year Financial Targets
Net sales are expected to be in a range of approximately $710.0 million to $730.0 million with year-over-year growth in both Comtech's Commercial Solutions and Government Solutions segments and the achievement of a consolidated book-to-bill ratio in excess of 1.0.
Total depreciation expense is expected to approximate $13.0 million.
Total amortization of intangible assets is expected to approximate $21.0 million.
Total amortization of stock-based compensation expense is expected to range from approximately $12.0 million to $14.0 million.
GAAP operating income, as a percentage of net sales, is expected to approximate 7.0% as compared to the 6.2% Comtech achieved in fiscal 2019.
Comtech’s interest expense rate (including amortization of deferred financing costs) is expected to approximate 4.6% with total interest expense of approximately $7.5 million in fiscal 2020. Comtech's current cash borrowing rate is approximately 4.0%.
Comtech's effective income tax rate (excluding discrete tax items) is expected to approximate 23.0%.
Adjusted EBITDA is expected to be in a range of approximately $98.0 million to $102.0 million or approximately 14.0%.
Including Comtech's estimates of first quarter fiscal 2020 acquisition plan expenses of $1.5 million, GAAP EPS is expected to range from $1.30 to $1.45. Excluding first quarter fiscal 2020 acquisition plan expenses, Non-GAAP EPS is expected to approximate $1.35 to $1.50.
Like Comtech's business cycle for the past several years, the financial performance in the second half of fiscal 2020 is anticipated to be higher than the first half, with its first quarter of fiscal 2020 being the lowest in terms of consolidated net sales and Adjusted EBITDA. Comtech's GAAP operating income in the first quarter of fiscal 2020 is expected to be lower than the $7.3 million it achieved during its first quarter in fiscal 2019, primarily due to incremental amortization of intangible assets associated with its fiscal 2019 acquisitions. In addition, in order to take advantage of additional growth opportunities and meet Comtech's strategic objectives, its GAAP operating income in the first quarter of fiscal 2020 is expected to reflect approximately $1.5 million of acquisition plan expenses for companies whose offerings are complementary to its business. Based on all of the aforementioned, Comtech expects its first quarter consolidated net sales to approximate $168.0 million with Adjusted EBITDA at $18.1 million or slightly better than the $160.8 million of consolidated net sales and $18.0 million of Adjusted EBITDA it achieved in the first quarter of fiscal 2019. For the remaining quarters of fiscal 2020, Comtech does expect consolidated net sales and Adjusted EBITDA to be better than the comparative quarters of fiscal 2019 with the fourth quarter being the peak quarter of the year. Regardless of timing, fiscal 2020 is expected to be a better year than fiscal 2019.
Except as discussed, the aforementioned fiscal 2020 financial targets do not include the impact of any acquisitions or the impact of any other expense Comtech may incur in order to achieve its strategic objectives. Total acquisition plan expenses in fiscal 2020 may ultimately be higher than the $1.5 million Comtech expects to incur in the first quarter of fiscal 2020. If order flow remains strong and Comtech can achieve all of its fiscal 2020 business goals, it is possible that net sales and Adjusted EBITDA could be higher than Comtech’s targeted amounts.
Conference Call
The Company has scheduled an investor conference call for 4:30 PM (ET) on Tuesday, September 24, 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 at www.comtechtel.com. Alternatively, investors can access the conference call by dialing (800) 894-5910 (domestic), or (785) 424-1052 (international) and using the conference I.D. "Comtech." A replay of the conference call will be available for seven days by dialing (800) 839-4013 or (402) 220-2982. In addition, an updated investor presentation, including earnings guidance, is available on the Company's website.