Comtech Telecommunications Corp. today reported its operating results for the first fiscal quarter ended October 31, 2018 and updated its fiscal 2019 guidance.
Fiscal 2019 First Quarter Highlights
Net sales for the first quarter of fiscal 2019 were $160.8 million as compared to the $121.6 million achieved during the first quarter of fiscal 2018.
Bookings during the first quarter of fiscal 2019 were $157.4 million, with a company-wide book-to-bill ratio (a measure defined as bookings divided by net sales) of 0.98.
Backlog as of October 31, 2018 reflects a near record high of $627.3 million. Backlog does not include the portions of multi-year contracts that have not been funded. As such, the total value of multi-year contracts that Comtech has received is substantially higher.
Comtech received a number of strategic contracts and orders, including: (i) over $28.4 million of orders to supply Manpack Satellite Terminals, networking equipment and other advanced VSAT products to the U.S. Army; (ii) a $6.8 million contract renewal to provide a GPS-enabled application to a key Fortune 100 customer; (iii) a strategic contract valued at $5.5 million from a global telecommunications and media company to provide virtualized mobile service device location platforms supporting various location-based services ("LBS"); (iv) $5.4 million of orders to provide ongoing sustainment services to the U.S. Army for the AN/TSC-198A SNAP (Secret Internet Protocol Router ("SIPR") and Non-classified Internet Protocol Router ("NIPR") Access Point), Very Small Aperture Terminals ("VSATs"); (v) a multi-year $1.9 million order from a top U.S. telecom service provider for hosted data assistance services related to the delivery of LBS; and (vi) a multi-year contract extension totaling $1.2 million to provide Federal Communications Commission ("FCC") mandated enhanced 911 ("E911") and emergency call routing services to a U.S. wireless carrier.
GAAP operating income of $7.3 million, GAAP net income of $3.5 million and GAAP diluted earnings per share of $0.14 was impacted by several steps taken by Comtechto improve operating efficiencies and make progress towards achieving its long-term business goals. As presented in more detail in the below table, these steps include: (i) successfully consolidating a manufacturing facility located in Tampa, Florida with its facility in Orlando, Florida; (ii) initiating a targeted acquisition plan related to a small but growing technology solutions company; (iii) entering a new $550.0 million Credit Facility that is intended to provide increased balance sheet flexibility, improved interest rate pricing and less restrictive covenants as compared to its prior credit facility; and (iv) recording a net discrete tax benefit primarily related to the favorable resolution with the Internal Revenue Service ("IRS") with respect to their audit of its fiscal 2016 federal income tax return. Excluding the impact of these steps, operating income would have been $9.8 million, net income would have been $5.5 million and earnings per diluted share would have been $0.22.
Adjusted EBITDA was $18.0 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.
In commenting on Comtech’s performance for the first quarter of fiscal 2019, Fred Kornberg, President and Chief Executive Officer, noted, "Fiscal 2019 is off to a great start. Our results for the first quarter exceeded our expectations and our pipeline of opportunities remains strong. Based on our outstanding first quarter performance, we are increasing our targeted goals for consolidated net sales and Adjusted EBITDA and expect fiscal 2019 to be another successful year."
Updated 2019 Fiscal Year Financial Targets
Comtech is increasing its fiscal 2019 consolidated net sales goal to a range of approximately $625.0 million to $640.0 million as compared to the prior range of $600.0 million and $625.0 million.
Comtech's updated GAAP net income per diluted share ("EPS") target for fiscal 2019 is now $0.95 to $1.08. This GAAP EPS metric reflects all facility exit costs, acquisition plan expenses, write-off of deferred financing costs and net discrete tax benefits.
Comtech is increasing its Adjusted EBITDA goal to a range of $84.0 million to $88.0 million. If order flow remains strong and Comtech can achieve all of its fiscal 2019 business goals, it is possible that financial results could be higher than its targeted amounts.
Although Comtech's GAAP consolidated operating income and adjusted EBITDA in the second half of fiscal 2019 are still expected to be higher than the first half of fiscal 2019, it now expects a more balanced year. In this regard, Comtech’s second quarter consolidated net sales, operating income and Adjusted EBITDA are expected to be nearly the same as its first quarter of fiscal 2019. Comtech's third quarter results for fiscal 2019 are expected to be better than its expected results for the second quarter of fiscal 2019. Comtech still expects its fourth quarter of fiscal 2019 to be the peak quarter for consolidated net sales, operating income and Adjusted EBITDA. Comtech'supdated 2019 fiscal year financial targets include a number of items, the timing of which can still shift and impact its quarterly financial performance. However, Comtechcurrently does not believe that changes in such timing would negatively impact its ability to achieve its updated 2019 fiscal year financial targets.
Despite incurring facility exit costs and acquisition plan expenses, Comtechanticipates GAAP consolidated operating income, both in dollars and as a percentage of consolidated net sales, to be higher than the $35.1 million or 6.2% it achieved in fiscal 2018.
Comtech's estimated effective income tax rate for fiscal 2019 (excluding net discrete items) is now expected to approximate 22.75%.
Comtech's acquisition plan efforts related to a small but growing technology solutions company are ongoing and it currently expects to incur approximately $1.0 million of additional expenses in the second quarter of fiscal 2019. Comtech anticipates making an announcement related to this potential acquisition in the near term. There is no certainty that Comtech’s acquisition efforts will be successful and except for the impact of acquisition plan expenses, its updated 2019 fiscal year financial targets do not include any impact of such acquisition.