Comtech Telecommunications Corp. Announces Results for the First Quarter of Fiscal 2013 and Provides Updated Fiscal 2013 Guidance

MELVILLE, N.Y. -- (BUSINESS WIRE) -- December 6, 2012--Comtech Telecommunications Corp. (NASDAQ: CMTL) today reported its operating results for the first quarter ended October 31, 2012.

Net sales for the first quarter of fiscal 2013 were $91.0 million compared to $113.4 million for the first quarter of fiscal 2012. The period-over-period decrease in net sales is primarily due to lower net sales, as expected, in the Company’s mobile data communications segment.

GAAP net income was $7.4 million, or $0.36 per diluted share, for the first quarter of fiscal 2013 as compared to $12.6 million, or $0.47 per diluted share, for the first quarter of fiscal 2012.

Adjusted EBITDA was $18.5 million for the first quarter of fiscal 2013, as compared to $23.4 million for the comparative period in fiscal 2012.

The Company also provided updated fiscal 2013 guidance. Fiscal 2013 revenue is now expected to range from $350.0 million to $365.0 million and GAAP diluted earnings per share is now expected to be between $1.26 and $1.34. Adjusted EBITDA for fiscal 2013 is now expected to be in the range of $65.0 million to $68.0 million.

In commenting on the Company’s performance and business outlook, Fred Kornberg, President and Chief Executive Officer, stated, “Despite difficult market conditions, we are pleased with our first quarter results and the strong cash flows generated from our business.”

Mr. Kornberg added, “Although our long term growth plans have not changed, we believe that the U.S. government’s failure to resolve the “fiscal cliff” has resulted in increased uncertainty throughout our customer base. As such, we have adjusted our fiscal 2013 business outlook and updated our guidance accordingly.”

Selected Fiscal 2013 First Quarter Financial Metrics and Other Items

• Backlog as of October 31, 2012 was $133.3 million compared to $153.9 million as of July 31, 2012.
• Total bookings for the three months ended October 31, 2012 were $70.4 million compared to $95.4 million for the three months ended October 31, 2011.
• The Company’s first quarter results for fiscal 2013 include a pre-tax benefit of $2.4 million related to a change in fair value of the earn-out liability associated with the Company’s acquisition of Stampede Technologies, Inc., and also include a pre-tax net charge of $0.8 million related to a restructuring plan to wind-down the microsatellite product line of the Company’s mobile data communications segment.
• The Company’s first quarter results for fiscal 2012 included a pre-tax benefit of $5.6 million associated with the finalization of pricing and the related increased funding award for certain U.S. Army Movement Tracking System (“MTS”) and Blue Force Tracking-1 (“BFT-1”) orders and also included a pre-tax expense of $2.6 million associated with costs related to a withdrawn fiscal 2011 contested proxy solicitation.
• Adjusted EBITDA was $18.5 million for the three months ended October 31, 2012, as compared to $23.4 million for the three months ended October 31, 2011. Adjusted EBITDA is a Non-GAAP financial measure and is defined in the below table.

• The Company’s effective income tax rate in the first quarter of fiscal 2013 was 35.5%, and does not include any benefit associated with the federal research and experimentation credit which expired on December 31, 2011. The Company’s effective income tax rate for the twelve months ending July 31, 2013 is expected to approximate 35.5%, excluding any potential discrete tax adjustments. The increase in the Company’s estimated fiscal 2013 effective tax rate as compared to the Company’s previously expected rate of 34.5% is principally attributable to expected product and geographical mix changes in its updated fiscal 2013 business outlook.
• At October 31, 2012, the Company had $374.5 million of cash and cash equivalents, which does not reflect a quarterly dividend payment of $4.8 million that was paid on November 20, 2012.

• As separately announced today, the Company’s Board of Directors authorized a new $50.0 million stock repurchase program, which will be effective upon the completion of the Company’s current $250.0 million stock repurchase program, of which $11.3 million remains available for stock repurchases. Together with the new $50.0 million stock repurchase program, the Company is authorized to repurchase up to an additional $61.3 million of its common stock.

• The Company does not normally provide quarterly guidance. However, since second quarter sales and earnings per share are expected to be significantly lower compared to the other quarters in fiscal 2013, the Company notes that (i) sales in the second quarter of fiscal 2013 are expected to be approximately 15.0% lower than first quarter sales and (ii) diluted GAAP earnings per share for the second quarter are expected to be between $0.10 and $0.12.

• Additional information about the Company’s updated fiscal 2013 guidance is contained in the Company’s first quarter investor presentation which is located on the Company’s website at www.comtechtel.com.

Conference Call

The Company has scheduled an investor conference call for 8:30 AM (ET) on Friday, December 7, 2012. Investors and the public are invited to access a live webcast of the conference call from the investor relations section of the Comtech web site at www.comtechtel.com. Alternatively, investors can access the conference call by dialing (866) 952-1908 (domestic), or (785) 424-1827 (international) and using the conference I.D. of “Comtech.” A replay of the conference call will be available for seven days by dialing (800) 374-1216 or (402) 220-0681. In addition, an updated investor presentation, including earnings guidance, is available on the Company’s web site.

About Comtech

Comtech Telecommunications Corp. designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. The Company believes many of its solutions play a vital role in providing or enhancing communication capabilities when terrestrial communications infrastructure is unavailable, inefficient or too expensive. The Company conducts business through three complementary segments: telecommunications transmission, RF microwave amplifiers and mobile data communications. The Company sells products to a diverse customer base in the global commercial and government communications markets. The Company believes it is a market leader in the market segments that it serves.

Cautionary Statement Regarding Forward-Looking Statements

Certain information in this press release contains forward-looking statements, including but not limited to, information relating to the Company’s future performance and financial condition, plans and objectives of the Company’s management and the Company’s assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under the Company’s control which may cause its actual results, future performance and financial condition, and achievement of plans and objectives of the Company’s management to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include the nature and timing of receipt of, and the Company’s performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; frequent new product announcements and enhancements; changing customer demands; changes in prevailing economic and political conditions; risks associated with the Company’s legal proceedings and other matters; risks associated with certain U.S. government investigations; risks associated with the Company’s BFT-1 contracts, including its ongoing negotiations with the U.S. Army regarding pricing for the engineering services, program management and satellite network operations, and the post-award audit of its original BFT-1 contract; risks associated with the Company’s obligations under its revolving credit facility; and other factors described in the Company’s filings with the Securities and Exchange Commission.

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)
		Three months ended October 31,
		2012				2011
Net sales		$	90,953,000			113,361,000
Cost of sales			49,150,000			62,081,000
Gross profit			41,803,000			51,280,000
Expenses:
Selling, general and administrative			16,810,000			24,118,000
Research and development			10,049,000			9,684,000
Amortization of intangibles			1,582,000			1,719,000
			28,441,000			35,521,000
Operating income			13,362,000			15,759,000
Other expenses (income):
Interest expense			2,111,000			2,146,000
Interest income and other			(276,000	)		(496,000	)
Income before provision for income taxes			11,527,000			14,109,000
Provision for income taxes			4,092,000			1,508,000
Net income		$	7,435,000			12,601,000
Net income per share:
Basic		$	0.43			0.54
Diluted		$	0.36			0.47
Weighted average number of common shares outstanding – basic			17,379,000			23,257,000
Weighted average number of common and common equivalent shares outstanding – diluted			23,444,000			29,147,000
Dividends declared per issued and outstanding common share as of the applicable dividend record date		$	0.275			0.275

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets
		October 31, 2012				July 31, 2012
Assets		(Unaudited)				(Audited)
Current assets:
Cash and cash equivalents		$	374,506,000			367,894,000
Accounts receivable, net			46,927,000			56,242,000
Inventories, net			68,648,000			72,361,000
Prepaid expenses and other current assets			5,645,000			8,196,000
Deferred tax asset, net			10,269,000			12,183,000
Total current assets			505,995,000			516,876,000
Property, plant and equipment, net			21,861,000			22,832,000
Goodwill			137,354,000			137,354,000
Intangibles with finite lives, net			37,251,000			38,833,000
Deferred tax asset, net, non-current			-			438,000
Deferred financing costs, net			2,135,000			2,487,000
Other assets, net			998,000			958,000
Total assets		$	705,594,000			719,778,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	14,210,000			20,967,000
Accrued expenses and other current liabilities			33,088,000			40,870,000
Dividends payable			4,784,000			4,773,000
Customer advances and deposits			11,930,000			14,516,000
Interest payable			3,029,000			1,529,000
Income taxes payable			13,000			-
Total current liabilities			67,054,000			82,655,000
Convertible senior notes			200,000,000			200,000,000
Other liabilities			3,741,000			5,098,000
Income taxes payable			2,725,000			2,624,000
Deferred tax liability, net			1,598,000			-
Total liabilities			275,118,000			290,377,000
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 28,958,428 shares and 28,931,679 shares at October 31, 2012 and July 31, 2012, respectively			2,896,000			2,893,000
Additional paid-in capital			359,879,000			361,458,000
Retained earnings			406,878,000			404,227,000
			769,653,000			768,578,000
Less:
Treasury stock, at cost (11,564,059 shares)			(339,177,000	)		(339,177,000	)
Total stockholders’ equity			430,476,000			429,401,000
Total liabilities and stockholders’ equity		$	705,594,000			719,778,000

COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (Unaudited)
		Three Months Ended October 31,
		2012			2011
Reconciliation of GAAP Net Income to Adjusted EBITDA(1):
GAAP net income		$	7,435,000		12,601,000
Income taxes			4,092,000		1,508,000
Net interest expense and other			1,835,000		1,650,000
Amortization of stock-based compensation			745,000		873,000
Depreciation and other amortization			3,607,000		4,139,000
Restructuring charges related to the wind-down of microsatellite product line			822,000		-
Costs related to withdrawn fiscal 2011 contested proxy solicitation			-		2,638,000
Adjusted EBITDA		$	18,536,000		23,409,000

(1)

Represents earnings before interest, income taxes, depreciation and amortization of intangibles and stock-based compensation and restructuring charges related to the wind-down of the microsatellite product line of the Company’s mobile data communications segment and costs related to a withdrawn fiscal 2011 contested proxy solicitation. 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.

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