FORM 8-K |
June 7, 2017 | 0-7928 | |
Date of Report (Date of earliest event reported) | Commission File Number |
(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 |
• | Net sales for the three months ended April 30, 2017 were $127.8 million as compared to $124.2 million for the three months ended April 30, 2016. |
• | Comtech achieved a company-wide book-to-bill ratio (a measure defined as bookings divided by net sales) of 1.06 reflecting strong bookings in its Government Solutions segment. As of April 30, 2017, the Company had backlog of $461.3 million, up from $453.3 million as of January 31, 2017. |
• | GAAP operating income was $10.2 million and GAAP net income was $4.4 million, or $0.19 per diluted share, for the three months ended April 30, 2017, as compared to a GAAP operating loss of $13.4 million and a GAAP net loss of $14.4 million, or $(0.89) per diluted share, for the three months ended April 30, 2016. During the third quarter of fiscal 2017, the Company favorably resolved a TCS intellectual property litigation matter, which resulted in a $2.0 million contribution to GAAP operating income. Excluding the $2.0 million benefit, GAAP diluted EPS would have been $0.13 for the three months ended April 30, 2017. |
• | Adjusted EBITDA (which excludes the $2.0 million favorable settlement discussed above) was $18.1 million for the three months ended April 30, 2017. 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. |
• | As of April 30, 2017, the Company had $58.8 million of cash and cash equivalents. During the third quarter of fiscal 2017, the Company generated cash flows from operating activities of $18.3 million. In view of the Company's expectations for continued strong operating cash flows, in June 2017, the Company entered into an amendment of its Secured Credit Facility, which it expects will result in increased operating and acquisition flexibility and simplify the calculations of its financial covenants as compared to the original terms of the Secured Credit Facility. This amendment is more fully discussed in a Form 8-K and Form 10-Q filed by the Company with the Securities and Exchange Commission today. |
• | In May 2017, the Company announced the general availability of its HeightsTM Dynamic Network Access Technology ("HEIGHTS"), a potentially revolutionary technology designed to deliver the most Internet Protocol bits per Hertz (per satellite network operator) in its class, as well as robust reliability. To date, customer reaction has been positive, as reflected in the Company's receipt of orders in the third fiscal quarter, and the Company has a growing sales funnel of HEIGHTS opportunities that the Company expects to close. |
• | The Company believes it is starting to see benefits from its continuing tactical shift in strategy in its Government Solutions segment away from bidding on large commodity service contracts and toward pursuing contracts for its niche products with higher margins. |
• | The Company has updated its fiscal 2017 revenue target to a range of $550.0 million to $555.0 million. This new target, which compares to its previous target of $570.0 million to $580.0 million, largely reflects the Company's updated assessment of the impact of its tactical shift in strategy in its Government Solutions segment, a longer sales cycle for its HEIGHTS products and other product mix changes. The Company's fourth quarter is expected to benefit from an increase in orders for its HEIGHTS products; however, given the complexity and sophistication of the HEIGHTS system and the Company's experience since its launch of HEIGHTS, the initial sales cycle will be longer than the Company's prior satellite earth station new product launches. As such, the Company now anticipates that fiscal 2018 will be the break-out year for orders and sales of its HEIGHTS products, rather than the fourth quarter of fiscal 2017. |
• | The Company updated its GAAP diluted EPS goal to approximately $0.67 per diluted share (which includes $0.33 per diluted share related to $12.0 million of favorable TCS intellectual property litigation settlements). |
• | The Company firmed up its Adjusted EBITDA goal to a range of $68.0 million to $70.0 million. The range reflects updated revenue targets, the benefit of additional cost reduction actions and the impact of overall favorable changes in product mix assumptions. |
• | The Company is pursuing a number of awards for large multi-million dollar and multi-year contracts. Although the extent and timing of any of these contract awards is difficult to predict, the Company expects to receive some of these awards shortly. Because of uncertainty regarding contract award and order timing, it is difficult to predict our fourth quarter fiscal 2017 book-to-bill ratio. If some of these large contracts are awarded and orders are booked in the fourth quarter of fiscal 2017, consolidated fourth quarter bookings could be almost twice the level that the Company achieved in its third quarter of fiscal 2017. At the same time, it is possible that the award of these potential large contracts and related orders may slip into fiscal 2018. In either event, these orders, if booked, are expected to benefit fiscal 2018 financial results. |
• | Total annual amortization of intangibles is expected to range from $22.0 million to $24.0 million, total depreciation expense is expected to range from $14.0 million to $15.0 million and total amortization of stock-based compensation is expected to range from $5.0 million to $8.0 million. |
• | Interest expense, on total anticipated borrowings, is expected to approximate $12.0 million (including amortization of deferred financing costs). Such interest expense reflects an expected interest rate ranging from approximately 4.5% to 5.0%. The Company's actual cash borrowing interest rate (which excludes the amortization of deferred financing costs) currently approximates 4.0%. |
• | The Company's effective income tax rate (excluding discrete tax items) is expected to approximate 36.0%. |
Three months ended April 30, | Nine months ended April 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net sales | $ | 127,792,000 | 124,187,000 | 402,606,000 | 258,627,000 | |||||||
Cost of sales | 75,331,000 | 72,796,000 | 244,833,000 | 149,596,000 | ||||||||
Gross profit | 52,461,000 | 51,391,000 | 157,773,000 | 109,031,000 | ||||||||
Expenses: | ||||||||||||
Selling, general and administrative | 25,923,000 | 30,439,000 | 89,596,000 | 60,818,000 | ||||||||
Research and development | 12,961,000 | 12,613,000 | 40,371,000 | 28,216,000 | ||||||||
Amortization of intangibles | 5,468,000 | 4,776,000 | 17,555,000 | 7,348,000 | ||||||||
Settlement of intellectual property litigation | (2,041,000 | ) | — | (12,020,000 | ) | — | ||||||
Acquisition plan expenses | — | 16,960,000 | — | 20,689,000 | ||||||||
42,311,000 | 64,788,000 | 135,502,000 | 117,071,000 | |||||||||
Operating income (loss) | 10,150,000 | (13,397,000 | ) | 22,271,000 | (8,040,000 | ) | ||||||
Other expenses (income): | ||||||||||||
Interest expense and other | 2,761,000 | 3,473,000 | 8,938,000 | 3,621,000 | ||||||||
Interest income and other | 88,000 | (5,000 | ) | 12,000 | (227,000 | ) | ||||||
Income (loss) before provision for (benefit from) income taxes | 7,301,000 | (16,865,000 | ) | 13,321,000 | (11,434,000 | ) | ||||||
Provision for (benefit from) income taxes | 2,884,000 | (2,510,000 | ) | 4,808,000 | (994,000 | ) | ||||||
Net income (loss) | $ | 4,417,000 | (14,355,000 | ) | 8,513,000 | (10,440,000 | ) | |||||
Net income (loss) per share: | ||||||||||||
Basic | $ | 0.19 | (0.89 | ) | 0.36 | (0.65 | ) | |||||
Diluted | $ | 0.19 | (0.89 | ) | 0.36 | (0.65 | ) | |||||
Weighted average number of common shares outstanding – basic | 23,449,000 | 16,195,000 | 23,420,000 | 16,184,000 | ||||||||
Weighted average number of common and common equivalent shares outstanding – diluted | 23,503,000 | 16,195,000 | 23,449,000 | 16,184,000 | ||||||||
Dividends declared per issued and outstanding common share as of the applicable dividend record date | $ | 0.10 | 0.30 | 0.50 | 0.90 |
April 30, 2017 | July 31, 2016 | |||||
(Unaudited) | (Audited) | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 58,817,000 | 66,805,000 | |||
Accounts receivable, net | 120,448,000 | 150,967,000 | ||||
Inventories, net | 67,337,000 | 71,354,000 | ||||
Prepaid expenses and other current assets | 19,599,000 | 14,513,000 | ||||
Total current assets | 266,201,000 | 303,639,000 | ||||
Property, plant and equipment, net | 33,981,000 | 38,667,000 | ||||
Goodwill | 290,633,000 | 287,618,000 | ||||
Intangibles with finite lives, net | 267,139,000 | 284,694,000 | ||||
Deferred financing costs, net | 2,765,000 | 3,309,000 | ||||
Other assets, net | 3,039,000 | 3,269,000 | ||||
Total assets | $ | 863,758,000 | 921,196,000 | |||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 27,226,000 | 33,462,000 | |||
Accrued expenses and other current liabilities | 73,844,000 | 98,034,000 | ||||
Dividends payable | 2,342,000 | 7,005,000 | ||||
Customer advances and deposits | 31,326,000 | 29,665,000 | ||||
Current portion of long-term debt | 14,387,000 | 11,067,000 | ||||
Current portion of capital lease obligations | 2,689,000 | 3,592,000 | ||||
Interest payable | 95,000 | 1,321,000 | ||||
Total current liabilities | 151,909,000 | 184,146,000 | ||||
Non-current portion of long-term debt, net | 211,509,000 | 239,969,000 | ||||
Non-current portion of capital lease obligations | 2,185,000 | 4,021,000 | ||||
Income taxes payable | 2,502,000 | 2,992,000 | ||||
Deferred tax liability, net | 14,784,000 | 9,798,000 | ||||
Customer advances and deposits, non-current | 8,064,000 | 5,764,000 | ||||
Other liabilities | 3,150,000 | 4,105,000 | ||||
Total liabilities | 394,103,000 | 450,795,000 | ||||
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 38,603,033 shares and 38,367,997 shares at April 30, 2017 and July 31, 2016, respectively | 3,860,000 | 3,837,000 | ||||
Additional paid-in capital | 527,434,000 | 524,797,000 | ||||
Retained earnings | 380,210,000 | 383,616,000 | ||||
911,504,000 | 912,250,000 | |||||
Less: | ||||||
Treasury stock, at cost (15,033,317 shares at April 30, 2017 and July 31, 2016) | (441,849,000 | ) | (441,849,000 | ) | ||
Total stockholders’ equity | 469,655,000 | 470,401,000 | ||||
Total liabilities and stockholders’ equity | $ | 863,758,000 | 921,196,000 |
Three months ended April 30, | Nine months ended April 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA: | ||||||||||||
Net income (loss) | $ | 4,417,000 | (14,355,000 | ) | 8,513,000 | (10,440,000 | ) | |||||
Provision for (benefit from) income taxes | 2,884,000 | (2,510,000 | ) | 4,808,000 | (994,000 | ) | ||||||
Interest (income) and other expense | 88,000 | (5,000 | ) | 12,000 | (227,000 | ) | ||||||
Interest expense | 2,761,000 | 3,473,000 | 8,938,000 | 3,621,000 | ||||||||
Amortization of stock-based compensation | 991,000 | 1,041,000 | 2,980,000 | 3,166,000 | ||||||||
Amortization of intangibles | 5,468,000 | 4,776,000 | 17,555,000 | 7,348,000 | ||||||||
Depreciation | 3,532,000 | 3,082,000 | 10,849,000 | 6,078,000 | ||||||||
Acquisition plan expenses | — | 16,960,000 | — | 20,689,000 | ||||||||
Settlement of intellectual property litigation | (2,041,000 | ) | — | (12,020,000 | ) | — | ||||||
Adjusted EBITDA | $ | 18,100,000 | 12,462,000 | 41,635,000 | 29,241,000 |