FORM 8-K |
March 10, 2016 | 0-7928 | |
Date of Report (Date of earliest event reported) | Commission File Number |
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(Exact name of registrant as specified in its charter) |
Delaware | 11-2139466 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
68 South Service Road, Suite 230 Melville, New York 11747 | ||
(Address of Principal Executive Offices) (Zip Code) | ||
(631) 962-7000 | ||
(Registrant’s telephone number, including area code) |
Exhibit Number | Description |
By: | /s/ Michael D. Porcelain Name: Michael D. Porcelain Title: Senior Vice President and |
• | The Company continues to evaluate the impact of the TCS acquisition on its Business Outlook for Fiscal 2016, including finalizing required purchase accounting and fair-value estimates of assets and liabilities. This evaluation is expected to be largely complete by March 31, 2016 after which time the Company intends to host an earnings conference call to discuss its Business Outlook and the TCS acquisition in more detail. The exact date and timing of this conference call will be provided in a future announcement. |
• | The Company notes that its fiscal 2016 updated financial guidance reflects only five months of TCS operations as a result of the closing of the TCS transaction on February 23, 2016. Comtech’s third quarter of fiscal 2016 will reflect approximately two months of operations while its fourth quarter will reflect a full three months of operations. At the same time, Comtech’s second half of fiscal 2016, particularly its third quarter, will reflect significant transaction and merger related expenses. The total amount of transaction and merger related expenditures is expected to approximate $48.0 million which includes significant amounts for: (i) change-in-control payments, (ii) severance, (iii) costs associated with establishing a new $400.0 million credit facility (the "New Credit Facility") and (iv) professional fees for financial and legal advisors for both Comtech and TCS. |
• | The Company's anticipated revenues and Adjusted EBITDA in fiscal 2017 will include a full twelve months of TCS operations and is expected to be significantly higher than the amounts anticipated in fiscal 2016. On a pro-forma basis, the combined companies would have had revenues of approximately $643.5 million and Adjusted EBITDA of $80.4 million based on the unaudited last trailing twelve month results for Comtech and unaudited calendar year 2015 results for TCS. |
• | The Company is on track to deliver meaningful cost synergies, which are expected to approximate an annual run-rate of $8.0 million over the next several quarters, with $12.0 million of synergies in the second year after completing the acquisition. Synergies are expected to be achieved by reductions in duplicate public company costs, reduced spending on maintaining multiple information technology systems and obtaining increased operating efficiencies throughout the combined company. |
• | As of January 31, 2016, the Company had $163.5 million of cash and cash equivalents before payment of its quarterly dividend of $4.8 million on February 17, 2016 and before completion of the TCS acquisition. The TCS acquisition has a preliminary aggregate purchase price for accounting purposes of approximately $340.4 million (also referred to as the transaction equity value). As of February 23, 2016, the date the Company closed the acquisition, based on unaudited financial information, TCS had $61.4 million of cash and cash equivalents and debt (including accrued interest) of approximately $144.1 million. As such, the transaction had an enterprise value of approximately $423.2 million. The Company has funded and expects to fully fund the acquisition (including $48.0 million of transaction and merger related expenditures) and to repay the large majority of TCS's debt by redeploying a significant amount of its combined cash and cash equivalents, with the remaining funds coming from its New Credit Facility. On the closing date, the Company, on a pro-forma combined basis, assuming all transaction costs and TCS's outstanding debt were paid or assumed, had more than $50.0 million of cash and cash equivalents and outstanding debt of approximately $361.6 million. |
• | The Company's effective tax rate for both the three and six months ended January 31, 2016 reflects a discrete tax benefit of approximately $0.3 million, primarily related to the passage of legislation that included the retroactive, permanent extension of the federal research and experimentation credit from December 31, 2014. |
• | Adjusted EBITDA was $9.3 million and $16.8 million for the three and six months ended January 31, 2016 as compared to $14.9 million and $28.2 million for the three and six months ended January 31, 2015. |
• | Backlog as of January 31, 2016 was $92.6 million compared to $107.9 million as of October 31, 2015. Total bookings for the three and six months ended January 31, 2016 were $55.0 million and $109.3 million compared to $61.9 million and $154.2 million for the three and six months ended January 31, 2015. |
Three months ended January 31, | Six months ended January 31, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Net sales | $ | 70,323,000 | 81,802,000 | 134,440,000 | 158,193,000 | |||||||
Cost of sales | 40,885,000 | 43,927,000 | 76,800,000 | 84,993,000 | ||||||||
Gross profit | 29,438,000 | 37,875,000 | 57,640,000 | 73,200,000 | ||||||||
Expenses: | ||||||||||||
Selling, general and administrative | 15,053,000 | 16,026,000 | 30,379,000 | 31,552,000 | ||||||||
Research and development | 7,663,000 | 9,666,000 | 15,603,000 | 19,685,000 | ||||||||
Acquisition plan expenses | 2,337,000 | — | 3,729,000 | — | ||||||||
Amortization of intangibles | 1,196,000 | 1,560,000 | 2,572,000 | 3,121,000 | ||||||||
26,249,000 | 27,252,000 | 52,283,000 | 54,358,000 | |||||||||
Operating income | 3,189,000 | 10,623,000 | 5,357,000 | 18,842,000 | ||||||||
Other expenses (income): | ||||||||||||
Interest expense | 73,000 | 69,000 | 148,000 | 334,000 | ||||||||
Interest income and other | (110,000 | ) | (90,000 | ) | (222,000 | ) | (174,000 | ) | ||||
Income before provision for income taxes | 3,226,000 | 10,644,000 | 5,431,000 | 18,682,000 | ||||||||
Provision for income taxes | 750,000 | 3,059,000 | 1,516,000 | 5,872,000 | ||||||||
Net income | $ | 2,476,000 | 7,585,000 | 3,915,000 | 12,810,000 | |||||||
Net income per share: | ||||||||||||
Basic | $ | 0.15 | 0.47 | 0.24 | 0.79 | |||||||
Diluted | $ | 0.15 | 0.46 | 0.24 | 0.78 | |||||||
Weighted average number of common shares outstanding – basic | 16,186,000 | 16,241,000 | 16,178,000 | 16,229,000 | ||||||||
Weighted average number of common and common equivalent shares outstanding – diluted | 16,205,000 | 16,505,000 | 16,201,000 | 16,510,000 | ||||||||
Dividends declared per issued and outstanding common share as of the applicable dividend record date | $ | 0.30 | 0.30 | 0.60 | 0.60 |
January 31, 2016 | July 31, 2015 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 163,466,000 | 150,953,000 | |||
Accounts receivable, net | 53,749,000 | 69,255,000 | ||||
Inventories, net | 58,424,000 | 62,068,000 | ||||
Prepaid expenses and other current assets | 5,940,000 | 7,396,000 | ||||
Deferred tax asset, net | — | 11,084,000 | ||||
Total current assets | 281,579,000 | 300,756,000 | ||||
Property, plant and equipment, net | 13,839,000 | 15,370,000 | ||||
Goodwill | 137,354,000 | 137,354,000 | ||||
Intangibles with finite lives, net | 17,437,000 | 20,009,000 | ||||
Deferred tax asset, net, non-current | 10,512,000 | — | ||||
Deferred financing costs, net | 759,000 | — | ||||
Other assets, net | 690,000 | 388,000 | ||||
Total assets | $ | 462,170,000 | 473,877,000 | |||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 18,270,000 | 15,708,000 | |||
Accrued expenses and other current liabilities | 30,579,000 | 29,470,000 | ||||
Dividends payable | 4,848,000 | 4,839,000 | ||||
Customer advances and deposits | 6,268,000 | 14,320,000 | ||||
Total current liabilities | 59,965,000 | 64,337,000 | ||||
Other liabilities | 2,864,000 | 3,633,000 | ||||
Income taxes payable | 1,469,000 | 1,573,000 | ||||
Deferred tax liability, net | — | 2,925,000 | ||||
Total liabilities | 64,298,000 | 72,468,000 | ||||
Commitments and contingencies | ||||||
Stockholders’ equity: | ||||||
Preferred stock, par value $.10 per share; shares authorized and unissued 2,000,000 | — | — | ||||
Common stock, par value $.10 per share; authorized 100,000,000 shares; issued 31,195,457 shares and 31,165,401 shares at January 31, 2016 and July 31, 2015, respectively | 3,120,000 | 3,117,000 | ||||
Additional paid-in capital | 429,361,000 | 427,083,000 | ||||
Retained earnings | 407,240,000 | 413,058,000 | ||||
839,721,000 | 843,258,000 | |||||
Less: | ||||||
Treasury stock, at cost (15,033,317 shares at January 31, 2016 and July 31, 2015) | (441,849,000 | ) | (441,849,000 | ) | ||
Total stockholders’ equity | 397,872,000 | 401,409,000 | ||||
Total liabilities and stockholders’ equity | $ | 462,170,000 | 473,877,000 | |||
Three months ended January 31, | Six months ended January 31, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Reconciliation of GAAP Net Income to Adjusted EBITDA(1): | ||||||||||||
GAAP net income | $ | 2,476,000 | 7,585,000 | 3,915,000 | 12,810,000 | |||||||
Income taxes | 750,000 | 3,059,000 | 1,516,000 | 5,872,000 | ||||||||
Net interest (income) expense and other | (37,000 | ) | (21,000 | ) | (74,000 | ) | 160,000 | |||||
Amortization of stock-based compensation | 1,074,000 | 1,061,000 | 2,125,000 | 2,398,000 | ||||||||
Depreciation and other amortization | 2,662,000 | 3,182,000 | 5,568,000 | 6,351,000 | ||||||||
Acquisition plan expenses | 2,337,000 | — | 3,729,000 | — | ||||||||
Strategic alternatives analysis expenses | — | — | — | 585,000 | ||||||||
Adjusted EBITDA | $ | 9,262,000 | 14,866,000 | 16,779,000 | 28,176,000 |
Twelve months ended | ||||||||||
January 31, 2016 | December 31, 2015 | Pro forma | ||||||||
Comtech | TCS | Combined | ||||||||
Reconciliation of GAAP Net Income to Adjusted EBITDA(1): | ||||||||||
GAAP net income | $ | 14,350,000 | 4,253,000 | $ | 18,603,000 | |||||
Income taxes | 6,402,000 | 1,791,000 | 8,193,000 | |||||||
Net interest (income) expense and other | (160,000 | ) | 7,948,000 | 7,788,000 | ||||||
Amortization of stock-based compensation | 4,090,000 | 5,040,000 | 9,130,000 | |||||||
Depreciation and other amortization | 11,953,000 | 15,939,000 | 27,892,000 | |||||||
Acquisition plan expenses | 3,729,000 | — | 3,729,000 | |||||||
Strategic alternatives analysis expenses and other | — | 5,029,000 | 5,029,000 | |||||||
Adjusted EBITDA | $ | 40,364,000 | 40,000,000 | $ | 80,364,000 |
(1) | Represents earnings before interest, income taxes, depreciation and amortization of intangibles (including capitalized software by TCS), amortization of stock-based compensation, acquisition plan expenses and strategic alternatives analysis expenses. Adjusted EBITDA is a non-GAAP operating metric used by management in assessing the Company's operating results. The Company's definition of Adjusted EBITDA may differ from the definition of EBITDA used by other companies and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is also a measure frequently requested by the Company's investors and analysts. The Company believes that investors and analysts may use Adjusted EBITDA, along with other information contained in its SEC filings, in assessing its ability to generate cash flow and service debt. |