New Contract Awarded

Investor Day

Third Quarter Results Released

Convergence Among Others

Joe Gomes

Virtual & In-person Roadshows / Conferences

Channelchek Premium. Access more at no cost. 

The site "channelcheck" is opened on the phone

Join the Channelchek Investor Community. Your name, email, zip, and investor type is all it takes to open the door to research reports, favorites tracking, and virtual and in-person roadshows / conferences. Even exclusive investment opps.

Take it to the next level. It doesn’t cost a penny.

Click “Log In” to agree to Channelchek.com <a href="#">Terms of Use</a> and acknowledge that Channelchek.com <a href="#">Privacy Policy</a> applies to you.

Welcome to the Channelchek Investor Community

Informed investors make more money. And it’s all about timing. Get it when it happens.

Inbox Intel from Channelchek.

Technology

Hardware

Comtech Telecommunications Corp.

2QFY2019 Results
 Second quarter results exceeded expectations on almost every front. The Company generated strong operating results, business momentum remains strong, and the pipeline of opportunities continues to grow. Overall, 2Q revenues came in at $164.1 million, up 22.7% year-over-year, GAAP EPS totaled $0.32, and adjusted EBITDA was $23.2 million, up 60% year-over-year. We projected revenue of $161 million, GAAP EPS of $0.15 and adjusted EBITDA of $18.3 million. Excluding one-time events, non-GAAP EPS was $0.40 in the quarter. Approximately 77% of the quarter&#8217;s revenue was derived from the U.S. with the remainder from international markets. In the second quarter of 2018, the percentages were 74% and 26%, respectively. U.S. Government sales accounted for some 45% of overall revenue, up substantially from 32% in the year ago period.&nbsp;
Commercial Solutions segment sales totaled $86.7 million, up from $85.8 million in the year ago period. Adjusted EBITDA came in at $18.4 million for the segment, or 21.2% of sales, compared to $15.8 million or 18.4% of revenue in the same period last year. Backing out $3.9 million of one-time contract settlement costs, adjusted EBITDA for 2Q19 totaled $22.3 million. The satellite earth station product line had a good quarter, with the HEIGHTS product on the verge of breaking out. Comtech is close to closing on a number of large HEIGHTS opportunities. Sales in both the enterprise technology solutions and safety and security technology solutions also were slightly higher year-over-year. Of note, during the quarter, management began implementing a program to shift the enterprise technology solutions group to higher margin solutions offerings. As part of the effort, Comtech incurred a $3.9 million charge for estimated contract settlements costs.
Government Solutions segment revenues for the second quarter came in at $77.4 million versus $47.9 million in the same period last year. Segment adjusted EBITDA was $9.0 million, or 11.6% of segment revenue, compared to $1.1 million, or 2.4% of sales in the same period last year. The increase in net sales for the segment reflects higher sales of command and control solutions, such as Manpack Satellite terminals, networking equipment, and other advanced VSAT products.
Bookings in the quarter were $123.3 million for a company-wide book-to-bill ratio of 0.75. Backlog ended the second quarter at $586.4 million, down from $627.3 million at the end of the first quarter. Although bookings were somewhat weak, management continues to expect bookings in the second half of the year to increase with the Company projecting to end fiscal 2019 with a book-to-bill close to 1.0. 
Status of Troposcatter and BFT-2 Contracts
 The disappointing news from the quarter concerned the two potential contracts for troposcatter products and the BFT-2 program. While disappointing, neither of these contracts was, or is, factored into the current business projections. They are the proverbial &#8220;icing on the cake.&#8221; Also, to note, in neither case is Comtech out of any potential award, rather both opportunities seem to have been pushed out again.
First BFT-2, which is a potential $250 million contract, based off of what Comtech achieved on BFT-1. Some background, after winning BFT-1 (and on which Comtech continues to provide support services with the Company just receiving $1.1 million of funding for additional services), Comtech was not the successful bidder on BFT-2. However, the BFT-2 winning bidder has not been able to perform under the contract. The U.S. Army went back to Comtech to supply 5,000 receivers under the BFT-2 program, which was completed in the second quarter. The Company was hopeful the Army would place additional receiver orders under BFT-2. However, the program office has yet to place additional orders and the situation has become &#8220;a little bit more cloudy.&#8221; It is possible the Army is just proceeding cautiously with the Army exploring potential additional capabilities. This may or may not result in the Army scrapping BFT-2 and moving on to BFT-3, which would become another open competition. One in which Comtech would be well positioned, in our view. It is just too early to predict the ultimate outcome, but it appears unlikely Comtech will receive any large awards under BFT-2 this year.
On troposcatter, the large prime contractor Comtech had teamed with on the overall contract was informed by the Army that its proposal was not being considered for further evaluation. It is not known at this time why the prime bid is not being considered, although we would note the troposcatter equipment was but one part of the overall contract. The prime has filed a formal protest. On the potentially positive side, the U.S. Marine Corp intends to separate itself from the Army proposal and issue a separate procurement proposal for troposcatter systems. The Marine proposal would be approximately one-half of the combined $200 million opportunity. So, the opportunity is not yet dead for Comtech, but in either case, Army and Marines, it would appear to be pushed to the right.
Core Business Remains Positive 
 In spite of the disappointing near-term outcome for the troposcatter and BFT-2 contracts, Comtech&#8217;s core business remains solid, with a positive operating environment. Comtech continues to win numerous strategic contracts and awards, including, among others:
<ul>
<li>$11.9 million for cyber security training solutions;</li>
<li>$11.6 million from the U.S. Navy for Comtech&#8217;s SLM-5650B satellite modems;</li>
<li>$6.9 million to provide ongoing sustainment services for the U.S. Army for the AN/TSC-198A SNAP VSATs;</li>
<li>$5.2 million to supply Manpack Satellite terminal, networking equipment, and other advanced VSAT products from the U.S. Army;</li>
<li>$3.6 million two year order from a Fortune 500 company for location-based service platforms and applications; and</li>
<li>$3.0 million of orders for antenna feeds to be incorporated into portable and inflatable 1.2 meter and 2.4 meter SATCOM terminals.</li>
</ul>
 Comtech&#8217;s overall end markets in the secure wireless communications space are large and growing and play into the key focus of the Department of Defense and corporate America. For example, the $1.2 billion satellite backhaul equipment and services market is projected to grow approximately 13% per year through 2027 on the back of an exploding satellite market. The $350 million NG911 market is growing at an estimated 17% per year, while the non-line-of-sight microwave network market is projected to reach $834 million in size over the next couple of years from $277 million today. And the Command &amp; Control (C4ISR) market is a massive $132 billion global market growing at 4% per year. Net net, there are plenty of growth opportunities for Comtech even without the BFT-2 and troposcatter business.&nbsp;
Continuing to Pursue Acquisitions
 In its guidance for the third quarter, management noted $1.0 million, or $0.03 per EPS, of expected acquisition plan expenses related to a targeted acquisition. The Company described the potential acquisition as a &#8220;small but growing technology solutions company, which we believe will further complement our product offerings.&#8221; We believe the Company is tracking multiple acquisition opportunities and that any such opportunity likely would follow a similar path as the Solacom purchase, although management was tight lipped with any additional detail.&nbsp;
Updated Projections
Given the first half outperformance, the existing backlog, future orders via existing contracts, and anticipated bookings and awards in the second half, management raised its guidance for the full fiscal 2019. The anticipated revenue range was raised to $645-$660 million, up from a prior $625-$640 million, and adjusted EBITDA was increased to $85-$89 million, from a prior $84-$88 million. Again, the guidance does not include any work from a troposcatter or BFT-2 award. And if the order flow remains strong, it is possible Comtech could exceed these raised targets. For the third quarter, we are projecting revenue of $163 million, adjusted EBITDA of $20.3 million and GAAP EPS of $0.21. This compares to 3Q18 results of $147.9 million of revenue, $23.5 million of adjusted EBITDA, and EPS of $0.34. For the full fiscal year 2019 we are now at revenue of $657.9 million, adjusted EBITDA of $87.1 million and GAAP EPS of $0.96. This compares to FY2018 revenue of $570.6 million, adjusted EBITDA of $78.4 million, and GAAP EPS of $1.24. Excluding one-time benefits and costs, FY2019 non-GAAP EPS is estimated at $1.14, up from an estimated non-GAAP EPS of $0.75 for FY2018.&nbsp;

Comtech Telecommunications Corp. (CMTL)

A Deeper Dive into 2Q19; Shares “On Sale” Following Recent Decline?

Fundamental Analysis:

Rating: Log in to view

New Contract Awarded (CMTL)

Investor Day (CMTL)

Third Quarter Results Released (CMTL)

Convergence Among Others (CMTL)

Inbox Intel from Channelchek.