FORM 8-K |
June 3, 2020 | 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) |
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Common Stock, par value $0.10 per share | CMTL | NASDAQ Stock Market LLC |
Series A Junior Participating Cumulative Preferred Stock, par value $0.10 per share |
Exhibit Number | Description |
By: | /s/ Michael A. Bondi Name: Michael A. Bondi Title: Chief Financial Officer |
• | Net sales for the third quarter of fiscal 2020 were $135.1 million. |
• | Bookings during the third quarter of fiscal 2020 were $137.5 million, with a company-wide book-to-bill ratio of 1.02. Backlog as of April 30, 2020 was $640.7 million. When adding Comtech's backlog and the total unfunded value of certain multi-year contracts that Comtech has received and for which it expects future orders, its revenue visibility approximates $1.0 billion. |
• | On a GAAP basis, the Company reported an operating loss of $3.1 million, a net loss of $4.0 million and a net loss per diluted share ("EPS") of $0.16. Comtech's operating loss was impacted by $6.0 million of acquisition plan expenses and $0.5 million of estimated contract settlement costs. As shown in the table below, excluding acquisition plan expenses, estimated contract settlement costs and a net discrete tax expense of $0.7 million during the quarter, Non-GAAP net income and EPS were $1.2 million and $0.05, respectively. Non-GAAP EPS is a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure below. |
• | Adjusted EBITDA for the third quarter of fiscal 2020 was $12.5 million, or 9.2% of consolidated net sales. 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. |
• | Comtech generated GAAP operating cash flows of $7.7 million during the quarter and had $50.6 million of cash and cash equivalents at April 30, 2020. |
• | Comtech’s third quarter of fiscal 2020, running from February 1 through April 30, 2020, corresponded precisely with the period in which worldwide restrictions on business activities were in force due to the COVID-19 pandemic. As a result, Comtech experienced significant order delays and lower net sales. During the quarter, in response to lower levels of business activity, Comtech implemented a variety of cost saving measures, including reducing global headcount by approximately 10%, reducing salaries, suspending merit increases and eliminating certain discretionary expenses. Severance costs relating to these actions were not material and cost reduction efforts continue. |
• | Although Comtech is deemed an essential business by the U.S. government, for the safety of its employees, customers, partners and suppliers, it has implemented remote working arrangements, curtailed most business travel, and established social distancing safeguards at its facilities. Comtech expects that such precautions will remain in effect for as long as government advisories recommend. |
• | Comtech’s Commercial Solutions segment achieved a book-to-bill ratio of 0.73. Its satellite ground station technologies product line, which has historically required significant in-person meetings to generate new business and finalize sales orders, has been most impacted by restrictions on business activities. With Comtech’s recent deployment of new video sales channel methods and the partial resumption of businesses activities in some places around the world, Comtech believes this product line has started to slowly recover. Importantly, Comtech has been awarded multiple satellite ground station technology solution contracts to support several U.S. Department of Defense (“DoD”) end customers, and has received initial funding for these critical projects that it expects will generate significant revenue for several years. In addition, Comtech believes that demand for its 911 public safety and location technology solutions remains strong and it is in the process of finalizing a number of large multi-year projects. During the quarter, Comtech was also awarded a multi-year contract valued at $9.1 million from a U.S. tier-one mobile network operator for 5G virtual mobile location-based technology solutions, including public safety applications. Additionally, Comtech also launched a new product line website highlighting its public safety and location-based solutions and secured several multi-year contracts valued at more than $15.0 million to deploy new call-handling solutions in the Midwest. |
• | Comtech’s Government Solutions segment achieved a book-to-bill ratio of 1.41. Although this segment has experienced order and shipment delays, demand for almost all of Comtech’s mission-critical technologies and high-performance transmission technologies remains strong. In particular, it continues to provide Very Small Aperture Terminal (“VSAT”) Satellite Communications Terminals to the U.S. government as well as ongoing sustainment services for several critical programs, including the SNAP and BFT-1 programs. Also, Comtech continues to support the U.S. government’s cyber security posture and received large orders for its Joint Cyber Analysis Course (“JCAC”) training solutions. In June 2020, Comtech announced COMET - the world’s smallest over-the-horizon microwave terminal and received an initial order for the U.S. Special Operations Command. It is also continuing to make significant efforts to win multi-year awards for several large new opportunities with the DoD. During the quarter, Comtech completed the integration of CGC Technology Limited, a leading provider of high precision full motion fixed and mobile X/Y satellite tracking antennas based in the United Kingdom, into its Government Solutions segment and is now working with several top-tier European aerospace companies and other government entities to meet expected long-term growth in LEO and MEO satellite constellations. |
• | Although the COVID-19 pandemic is by no means over and a second wave of COVID-19 could again alter the business landscape, Comtech believes that the pandemic’s worst impact on its business is largely behind it. Comtech’s long-term fundamentals remain strong as Comtech continues to believe it is well-positioned for growth as business conditions meaningfully improve. Although it has ceased during the current environment to provide specific financial targets for fiscal 2020 and it remains difficult to predict the timing of customer awards and related shipments, Comtech does expect fiscal 2020 fourth quarter consolidated net sales, net income and Adjusted EBITDA to be somewhat better than the results it achieved during the third fiscal quarter. Comtech expects to incur acquisition plan expenses of approximately $3.5 million during the fourth quarter of fiscal 2020. |
• | Comtech's ability to achieve improved results during the fourth quarter will depend, in large part, on timely deliveries and the receipt of, and its performance on, orders from its customers. Fourth quarter results will be negatively impacted if orders and/or deliveries are delayed, business conditions further deteriorate, or Comtech's current or prospective customers materially postpone, reduce or even forgo purchases of its products and services. Other than for acquisition plan expenses, Comtech's fourth quarter fiscal 2020 business outlook does not include the impact of the pending acquisitions of UHP or Gilat, or the impact of any other expense Comtech may incur in order to achieve its strategic objectives. |
• | In June 2020, Comtech and UHP Networks, Inc. (“UHP”), a leading provider of innovative and disruptive satellite ground station technology solutions, agreed to amend the terms of the agreement for Comtech’s purchase of UHP, which was originally announced in November 2019. Under the amended purchase agreement, the total aggregate purchase price has been reduced by approximately 24% from $50.0 million to $38.0 million (of which $5.0 million will be paid in cash, with the remainder in shares of Comtech common stock, cash, or a combination of both, as Comtech may elect at the time of closing). The transaction is subject to customary closing conditions, including necessary regulatory approval to allow Comtech to purchase UHP's sister company which is headquartered in Moscow. |
• | Comtech’s acquisition of Gilat Satellite Networks Ltd. ("Gilat") remains subject to certain conditions to closing, including regulatory approval in Russia. In May 2020, Comtech received notification from the Federal Antimonopoly Service of the Russian Federation that it was extending the review period for Comtech’s application pending a decision under the Foreign Investment Law to determine whether approval is required from the Chairman of the Russian Government Commission for Supervising Foreign Investments. |
• | During the third quarter of fiscal 2020, Comtech closed an acquisition of NG-911, Inc., a pioneer of Next Generation 911 solutions for public safety agencies in the Midwest. The acquisition allows Comtech to cost-effectively expand sales of its industry leading Solacom Guardian call management solutions for public safety. The financial impact of the acquisition was not material. |
Three months ended April 30, | Nine months ended April 30, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
Net sales | $ | 135,121,000 | 170,448,000 | $ | 467,042,000 | 495,425,000 | |||||||
Cost of sales | 82,120,000 | 106,032,000 | 289,872,000 | 311,995,000 | |||||||||
Gross profit | 53,001,000 | 64,416,000 | 177,170,000 | 183,430,000 | |||||||||
Expenses: | |||||||||||||
Selling, general and administrative | 32,313,000 | 33,409,000 | 93,538,000 | 97,243,000 | |||||||||
Research and development | 12,324,000 | 13,471,000 | 40,925,000 | 40,664,000 | |||||||||
Amortization of intangibles | 5,517,000 | 4,536,000 | 15,952,000 | 13,113,000 | |||||||||
Settlement of intellectual property litigation | — | — | — | (3,204,000 | ) | ||||||||
Acquisition plan expenses | 5,983,000 | 1,704,000 | 14,397,000 | 4,612,000 | |||||||||
56,137,000 | 53,120,000 | 164,812,000 | 152,428,000 | ||||||||||
Operating (loss) income | (3,136,000 | ) | 11,296,000 | 12,358,000 | 31,002,000 | ||||||||
Other expenses: | |||||||||||||
Interest expense | 1,504,000 | 2,159,000 | 4,924,000 | 7,095,000 | |||||||||
Write-off of deferred financing costs | — | — | — | 3,217,000 | |||||||||
Interest (income) and other | 108,000 | (22,000 | ) | 37,000 | (7,000 | ) | |||||||
(Loss) income before (benefit from) provision for income taxes | (4,748,000 | ) | 9,159,000 | 7,397,000 | 20,697,000 | ||||||||
(Benefit from) provision for income taxes | (759,000 | ) | 1,547,000 | 1,503,000 | 1,791,000 | ||||||||
Net (loss) income | $ | (3,989,000 | ) | 7,612,000 | $ | 5,894,000 | 18,906,000 | ||||||
Net (loss) income per share: | |||||||||||||
Basic | $ | (0.16 | ) | 0.31 | $ | 0.24 | 0.79 | ||||||
Diluted | $ | (0.16 | ) | 0.31 | $ | 0.24 | 0.78 | ||||||
Weighted average number of common shares outstanding – basic | 24,982,000 | 24,192,000 | 24,730,000 | 24,074,000 | |||||||||
Weighted average number of common and common equivalent shares outstanding – diluted | 24,982,000 | 24,330,000 | 24,892,000 | 24,263,000 |
April 30, 2020 | July 31, 2019 | |||||
(Unaudited) | (Audited) | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 50,634,000 | 45,576,000 | |||
Accounts receivable, net | 137,887,000 | 145,032,000 | ||||
Inventories, net | 79,423,000 | 74,839,000 | ||||
Prepaid expenses and other current assets | 22,691,000 | 14,867,000 | ||||
Total current assets | 290,635,000 | 280,314,000 | ||||
Property, plant and equipment, net | 27,149,000 | 28,026,000 | ||||
Operating lease right-of-use assets, net | 31,942,000 | — | ||||
Goodwill | 335,477,000 | 310,489,000 | ||||
Intangibles with finite lives, net | 260,162,000 | 261,890,000 | ||||
Deferred financing costs, net | 2,575,000 | 3,128,000 | ||||
Other assets, net | 3,792,000 | 3,864,000 | ||||
Total assets | $ | 951,732,000 | 887,711,000 | |||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 32,942,000 | 24,330,000 | |||
Accrued expenses and other current liabilities | 83,561,000 | 78,584,000 | ||||
Operating lease liabilities, current | 8,480,000 | — | ||||
Finance lease and other obligations, current | — | 757,000 | ||||
Dividends payable | 2,466,000 | 2,406,000 | ||||
Contract liabilities | 46,070,000 | 38,682,000 | ||||
Interest payable | 253,000 | 588,000 | ||||
Total current liabilities | 173,772,000 | 145,347,000 | ||||
Non-current portion of long-term debt | 159,400,000 | 165,000,000 | ||||
Operating lease liabilities, non-current | 25,864,000 | — | ||||
Income taxes payable | 2,316,000 | 325,000 | ||||
Deferred tax liability, net | 16,676,000 | 12,481,000 | ||||
Long-term contract liabilities | 11,151,000 | 10,654,000 | ||||
Other liabilities | 16,728,000 | 18,822,000 | ||||
Total liabilities | 405,907,000 | 352,629,000 | ||||
Commitments and contingencies | ||||||
Stockholders’ equity: | ||||||
Preferred stock, par value $.10 per share; shares authorized and unissued 2,000,000 | — | — | ||||
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 39,765,257 shares and 39,276,161 shares at April 30, 2020 and July 31, 2019, respectively | 3,977,000 | 3,928,000 | ||||
Additional paid-in capital | 564,965,000 | 552,670,000 | ||||
Retained earnings | 418,732,000 | 420,333,000 | ||||
987,674,000 | 976,931,000 | |||||
Less: | ||||||
Treasury stock, at cost (15,033,317 shares at April 30, 2020 and July 31, 2019) | (441,849,000 | ) | (441,849,000 | ) | ||
Total stockholders’ equity | 545,825,000 | 535,082,000 | ||||
Total liabilities and stockholders’ equity | $ | 951,732,000 | 887,711,000 |
Three months ended | Nine months ended | Fiscal | |||||||||||||||
April 30, | April 30, | Year | |||||||||||||||
2020 | 2019 | 2020 | 2019 | 2019 | |||||||||||||
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA: | |||||||||||||||||
Net (loss) income | $ | (3,989,000 | ) | 7,612,000 | $ | 5,894,000 | 18,906,000 | $ | 25,041,000 | ||||||||
(Benefit from) provision for income taxes | (759,000 | ) | 1,547,000 | 1,503,000 | 1,791,000 | 3,869,000 | |||||||||||
Interest (income) and other | 108,000 | (22,000 | ) | 37,000 | (7,000 | ) | 35,000 | ||||||||||
Write-off of deferred financing costs | — | — | — | 3,217,000 | 3,217,000 | ||||||||||||
Interest expense | 1,504,000 | 2,159,000 | 4,924,000 | 7,095,000 | 9,245,000 | ||||||||||||
Amortization of stock-based compensation | 981,000 | 1,119,000 | 3,098,000 | 3,356,000 | 11,427,000 | ||||||||||||
Amortization of intangibles | 5,517,000 | 4,536,000 | 15,952,000 | 13,113,000 | 18,320,000 | ||||||||||||
Depreciation | 2,650,000 | 2,918,000 | 8,022,000 | 8,618,000 | 11,927,000 | ||||||||||||
Estimated contract settlement costs | 476,000 | 2,465,000 | 444,000 | 6,351,000 | 6,351,000 | ||||||||||||
Settlement of intellectual property litigation | — | — | — | (3,204,000 | ) | (3,204,000 | ) | ||||||||||
Acquisition plan expenses | 5,983,000 | 1,704,000 | 14,397,000 | 4,612,000 | 5,871,000 | ||||||||||||
Facility exit costs | — | — | — | 1,373,000 | 1,373,000 | ||||||||||||
Adjusted EBITDA | $ | 12,471,000 | 24,038,000 | $ | 54,271,000 | 65,221,000 | $ | 93,472,000 |
April 30, 2020 | |||||||||||||||||||||||
Three months ended | Nine months ended | ||||||||||||||||||||||
Operating (Loss) Income | Net (Loss) Income | Net (loss) Income per Diluted Share* | Operating Income | Net Income | Net Income per Diluted Share* | ||||||||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings (Loss): | |||||||||||||||||||||||
GAAP measures, as reported | $ | (3,136,000 | ) | $ | (3,989,000 | ) | $ | (0.16 | ) | $ | 12,358,000 | $ | 5,894,000 | $ | 0.24 | ||||||||
Acquisition plan expenses | 5,983,000 | 4,128,000 | 0.16 | 14,397,000 | 9,934,000 | 0.40 | |||||||||||||||||
Estimated contract settlement costs | 476,000 | 328,000 | 0.01 | 444,000 | 306,000 | 0.01 | |||||||||||||||||
Net discrete tax expense (benefit) | — | 713,000 | 0.03 | — | (790,000 | ) | (0.03 | ) | |||||||||||||||
Non-GAAP measures | $ | 3,323,000 | $ | 1,180,000 | $ | 0.05 | $ | 27,199,000 | $ | 15,344,000 | $ | 0.62 | |||||||||||
April 30, 2019 | |||||||||||||||||||||||
Three months ended | Nine months ended | ||||||||||||||||||||||
Operating Income | Net Income | Net Income per Diluted Share* | Operating Income | Net Income | Net Income per Diluted Share* | ||||||||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings: | |||||||||||||||||||||||
GAAP measures, as reported | $ | 11,296,000 | $ | 7,612,000 | $ | 0.31 | $ | 31,002,000 | $ | 18,906,000 | $ | 0.78 | |||||||||||
Estimated contract settlement costs | 2,465,000 | 1,898,000 | 0.08 | 6,351,000 | 4,890,000 | 0.20 | |||||||||||||||||
Settlement of intellectual property litigation | — | — | — | (3,204,000 | ) | (2,467,000 | ) | (0.10 | ) | ||||||||||||||
Acquisition plan expenses | 1,704,000 | 1,312,000 | 0.05 | 4,612,000 | 3,551,000 | 0.15 | |||||||||||||||||
Facility exit costs | — | — | — | 1,373,000 | 1,057,000 | 0.04 | |||||||||||||||||
Write-off of deferred financing costs | — | — | — | — | 2,477,000 | 0.10 | |||||||||||||||||
Net discrete tax benefit | — | (559,000 | ) | (0.02 | ) | — | (2,991,000 | ) | (0.12 | ) | |||||||||||||
Non-GAAP measures | $ | 15,465,000 | $ | 10,263,000 | $ | 0.42 | $ | 40,134,000 | $ | 25,423,000 | $ | 1.05 | |||||||||||
Fiscal Year | |||||||||||||||||||||||
2019 | |||||||||||||||||||||||
Operating Income | Net Income | Net Income per Diluted Share* | |||||||||||||||||||||
Reconciliation of GAAP to Non-GAAP Earnings: | |||||||||||||||||||||||
GAAP measures, as reported | $ | 41,407,000 | $ | 25,041,000 | $ | 1.03 | |||||||||||||||||
Estimated contract settlement costs | 6,351,000 | 4,874,000 | 0.20 | ||||||||||||||||||||
Settlement of intellectual property litigation | (3,204,000 | ) | (2,459,000 | ) | (0.10 | ) | |||||||||||||||||
Facility exit costs | 1,373,000 | 1,054,000 | 0.04 | ||||||||||||||||||||
Acquisition plan expenses | 5,871,000 | 4,506,000 | 0.19 | ||||||||||||||||||||
Write-off of deferred financing costs | — | 2,469,000 | 0.10 | ||||||||||||||||||||
Net discrete tax benefit | — | (2,875,000 | ) | (0.12 | ) | ||||||||||||||||||
Non-GAAP measures | $ | 51,798,000 | $ | 32,610,000 | $ | 1.34 |