Comtech Telecommunications Corp. today reported its operating results for the second fiscal quarter ended January 31, 2018 and updated its fiscal 2018 guidance.
Fiscal 2018 Second Quarter Highlights
Net sales were $133.7 million.
Bookings were $210.6 million, with a book-to-bill ratio (a measure defined as bookings divided by net sales) of 1.57.
Backlog was $567.3 million, which is close to Comtech's record high. Comtech's backlog does not include the unfunded portions of multi-year contracts. As such, the total value of multi-year contracts that Comtech has received is substantially higher.
Comtech received several strategic contract awards including: (i) a $134.0 million award to provide one of the largest wireless carriers in the U.S. with enhanced 911 services; (ii) a $123.6 million contract to be the sole provider of sustainment support services for the U.S. Army's "SNAP" mobile satellite communications program; and (iii) an initial $11.7 million order to provide several thousand of Comtech's next generation MT-2025 mobile satellite transceivers to support the U.S. Army's Blue Force Tracking-2 ("BFT-2") system.
GAAP operating income was $4.9 million and GAAP net income was $15.8 million, or $0.66 per diluted share.
GAAP net income includes a net tax benefit of $14.0 million, or $0.59 per diluted share ("Tax Gain"), primarily due to the remeasurement of deferred tax assets and liabilities as a result of Tax Reform, which also resulted in a reduction to Comtech's fiscal 2018 estimated effective tax rate to approximately 27.75%. Excluding the $0.59 per diluted share Tax Gain, GAAP net income would have been approximately $1.8 million, or $0.07 per diluted share.
Adjusted EBITDA was $14.5 million. Adjusted EBITDA is a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure and is more fully defined in the below table.
Cash flows from operating activities were $2.7 million.
Cash dividends of $2.4 million were paid to common stockholders.
$40.5 million of cash and cash equivalents as of January 31, 2018.
In commenting on Comtech's performance during the second quarter of fiscal 2018 and Comtech's fiscal 2018 guidance, Fred Kornberg, President and Chief Executive Officer, stated, "I could not be more pleased with our better than expected second quarter results and the major multi-year contract awards that we have received to-date. Business momentum remains strong and shows no signs of slowing down. Given our year-to-date performance and strong positive business momentum, we are increasing our 2018 fiscal year financial targets and expect that fiscal 2018 will be a very strong year."
Updated 2018 Fiscal Year Financial Targets
Comtech is increasing its revenue target to a new range of approximately $570.0 million to $585.0 million, as compared to a prior range of $550.0 million to $575.0 million. Despite the absence of $6.7 million of BFT-1 intellectual property license fees that Comtech earned in fiscal 2017 supporting the U.S. Army's Blue Force Tracking Program, the mid-point of Comtech's new fiscal 2018 revenue target range represents a year-over-year growth rate of close to 5.0%.
Comtech is increasing its Adjusted EBITDA target to a new range of $72.0 million to $76.0 million, as compared to a prior range of $69.0 million to $73.0 million. Despite the absence of the $6.7 million of BFT-1 intellectual property license fees, the mid-point of the new fiscal 2018 Adjusted EBITDA target range represents a year-over-year growth rate of close to 5.0%.
Comtech's third quarter consolidated net sales and Adjusted EBITDA are expected to be higher than the related amounts achieved in its second quarter of fiscal 2018 by approximately 10.0%. Comtech's consolidated GAAP operating income and Adjusted EBITDA, as a percentage of its consolidated third quarter fiscal 2018 net sales, are expected to approximate 4.0% and 11.0%, respectively, with significant increases in each metric in the fourth quarter of fiscal 2018.
Comtech is increasing its GAAP diluted EPS target to a new range of $1.08 to $1.23, as compared to a prior range of $0.44 to $0.46. This new target range includes the benefits of the $0.59 per diluted share Tax Gain and better than expected operating performance, partially offset by an increase in expected amortization of stock-based compensation. GAAP diluted EPS for Comtech's third quarter of fiscal 2018 is expected to approximate a range of $0.10 to $0.12 per diluted share, which is higher than the $0.07 per diluted share Comtech achieved in its second quarter of fiscal 2018 when excluding the $0.59 per diluted share Tax Gain.
In line with its original Business Outlook for Fiscal 2018, Comtech's fourth quarter of fiscal 2018 is expected to be the peak quarter - by far - for consolidated net sales, GAAP operating income and Adjusted EBITDA.
Comtech's new estimated effective tax rate of 27.75% reflects seven months of benefit related to Tax Reform. Although Comtech continues to perform an analysis of Tax Reform and its impact, Comtech's initial assessment is that its effective tax rate in fiscal 2019, before any discrete items, will range from 24.5% to 26.0%.
If order flow remains strong and Comtech is able to achieve all of its fiscal 2018 business goals, it is possible that Comtech's actual fiscal 2018 consolidated net sales, GAAP diluted EPS and Adjusted EBITDA could be higher than its targeted amounts.