07 Dec 23. Comtech Announces Results for its First Quarter of Fiscal 2024 and Provides Second Quarter Fiscal 2024 Financial Targets.
Q1 Consolidated Net Sales Up 2.1% Sequentially to $151.9m
Q1 Consolidated Operating Income Up 86.2% Sequentially to $2.1m
Q1 Consolidated Adjusted EBITDA of $18.4m, or 12.1% of Consolidated Net Sales
Letter From CEO Ken Peterman President & CEO
Fellow Shareholders,
As we begin our new fiscal year, I’m pleased to report that Comtech continues to deliver on our commitment to growth. Net sales for our first quarter of fiscal 2024 rose 15.9% year-over-year to $151.9m, and bookings of $185.6m (as high as they’ve been since I assumed the role of CEO last year) represent a quarterly book-to-bill ratio of 1.22x. Since my arrival at Comtech, we have successfully delivered five quarters of sequential revenue growth as the One Comtech transformation takes root within our organization, reflecting an everstrengthening collaborative culture of innovation.
I wrote last quarter that becoming a forward-looking, agile, and invaluable solutions partner for our customers was at the heart of our ability to grow our business. Every day we are growing our capabilities as a provider of systems and services, moving up in the value chain and differentiating ourselves, as evidenced by significant wins, growing bookings, and increasing our revenue visibility to approximately $1.7bn. Our net sales this quarter are a reflection of the multiple, year-long initiatives that we have implemented to transform our company, reinvigorate our sales, and pivot aggressively toward delivering more comprehensive, innovative solutions that exploit the emerging opportunities of a complex communications landscape. The year-over-year improvement in our quarterly Adjusted EBITDA margins and the sequential improvement in our quarterly operating income speak to the effectiveness and power of our transformational journey. While we expect the current volatile business environment to challenge even near-term visibility into sales, and the underlying mix of products and services we deliver from quarter-to-quarter, we remain optimistic about our potential to grow over the long-term.
We have successfully delivered five quarters of sequential revenue growth as the One Comtech transformation takes root within our organization, reflecting an everstrengthening collaborative culture of innovation.
Technology Leadership
This optimism is well-founded, particularly as our technology leadership continues to be a meaningful differentiator for us. One recent example: on the heels of multiple, significant contract wins last quarter, we announced the receipt of a new $20m plus order from UK-based Spectra Group for our best in class COMET troposcatter systems. For international allies, having network agnostic, secure and interoperable communications capabilities is a crucial component of any and every national defense and security strategy. We believe this order is another clear indicator of this increasing global market demand. For our troposcatter Family of Systems, we believe that every additional win further validates our position as a provider of the best troposcatter solutions in the market. And in October, Comtech was awarded a $9.6m sole source contract from a major defense contractor that calls for delivery of Comtech’s highly regarded modem technologies and platforms supporting the Air Force and Army Anti-Jam Modem (“A3M”) program, providing cutting-edge anti-jam satellite communications capabilities to military personnel across diverse operational environments and geographies. This contract vehicle allows the DoD to place production order requests for A3M modems for years to come. Another recent example: the Canadian government, at the federal level, mandated the countrywide adoption of next-generation 911 services by March 2025 to ensure a national 911 infrastructure that can utilize the best of modern communications – including voice, text, video, location-based services, and both terrestrial and satellite-based networks. Comtech is at the forefront of this emerging opportunity. Strathcona County in Alberta recently became the first municipality in the country to introduce these services, and it was Comtech’s recognized expertise as a service provider that enabled this. This win for Comtech is particularly exciting because it demonstrates our commitment to the next-gen 911 space as we pursue nationwide implementation. Comtech’s technology is leading the way as communities across North America migrate to new emergency response technology. In fact, in October, Members of the Pennsylvania Emergency Management Comtech’s technology is leading the way as communities across North America migrate to new emergency response technology.
Fiscal Year 2024
Agency (“PEMA”) – a Comtech customer – received the Pennsylvania Governor’s Award for Excellence in recognition of their efforts on the PEMA Next Generation 9-1-1 project. Increasingly sophisticated first response technologies and services collect and integrate data from multiple sources to direct and optimize responses. These communications infrastructures will increasingly demand not only assured connectivity, interoperability between terrestrial and wireless networks, and advanced analytics, but need to meet high security standards as well. These are all core competencies for Comtech, and the work we’ve done to combine and harmonize our own businesses under One Comtech means that we can bring our native fluency in all aspects of communications infrastructure to bear on our client’s most complex challenges. The technology advantages we deliver to our customers across an expanding range of applications, combined with the growth we see in our existing end-markets – as well as new markets and applications that our solutions are creating – is one of the reasons I’m so excited as we look to the fiscal year ahead.
Our One Comtech Journey: Implementation
I believe fiscal 2024 at Comtech will be increasingly defined by implementation. An enormous amount of internal diligence that included operating policies, processes, tools, platforms and skill sets, is yielding results. We right-sized the business, improved key corporate structures, and hired for talent gaps. These changes resulted in our ability to consistently improve business operations as we apply new and better processes, systems and strategies. The implementation of One Comtech is driving results, and the progress is measurable: not only did Comtech deliver sequential growth in GAAP operating income this quarter, but investors will also note that excluding restructuring costs, our consolidated operating income this quarter was $15.3m or 10.1% of net sales, or a 410 basis point improvement on a comparable year-over-year basis.
We have instituted a formal Program Management Office to standardize best practices, which is having an impact on not only our ability to efficiently manage existing contracts with customers, but bring more effective budgeting, controls, risk and timeline management to future projects, all of which I believe will expand margins over time.
We have also launched an internal Finance Academy to ensure that all our business leaders have a clear understanding of the core economics that underlie our business, including contracts, programs and proposals. We have also consolidated our enterprise-wide engineering functions under a single leader, which allows us to prioritize staffing and resource deployment across the organization, regardless of business segment. We have strengthened our operational finance team with additional leadership with a proven track record in all aspects of financial planning, forecasting, execution, analysis, and capital allocation. In parallel, and we’ve talked about this for some time, we’re applying lean manufacturing and operating principles to everything we do, across every business unit at Comtech, every day. Whether it’s at our facilities in Chandler or Santa Clara, every new product and service is carefully designed and developed to maximize our return on investment. Not only are these (and other) efforts expanding our operating income as a percentage of net sales, these improvements are structural and durable. We also continue to attract great people who we expect will make significant contributions to Comtech’s growth. We recently appointed industry veteran John Ratigan as our Chief Corporate Development Officer. With three decades of leadership experience behind him, including the creation of a $100 m annual revenue satellite communications business from scratch, John is uniquely well-aligned with Comtech’s strategic business priorities and will drive our continued expansion into new growth markets. I am very confident he will serve Comtech, and our investors, well. I have known John for many years and am thrilled to welcome him to our Comtech Team.
Given the continued improvement in our operations, the growth in our bookings, and revenue visibility of approximately $1.7bn, we remain confident in the durability of our growth trajectory.
Focus on Balance Sheet
Finally, I want to note that we’re working hard to win new business and improve our operational machinery as we continue to work diligently to manage our balance sheet. The previously announced sale of our high power amplifier and control components product line closed on November 7th, and we received initial net cash proceeds of $32.5m. We’ve been in active and ongoing discussions with a number of lenders, alongside our financial advisors, evaluating a range of solutions to address the October 2024 maturity of our credit facility. Given the continued improvement in our operations, the growth in our bookings, and revenue visibility of approximately $1.7bn, we remain confident in the durability of our growth trajectory.
A Strong Start
All indications are that our fiscal year 2024 is off to a strong start. Our financial performance highlights how competitive Comtech is in our chosen markets:
- We’re focused on managing our cash and strengthening our balance sheet.
- We’re winning business in growing markets at the beginning of long-term, secular demand cycles. • Our operations continue to improve to support our goal to deliver long-term, profitable growth.
- And, we continue to attract the kind of high-quality individuals we expect to make significant contributions to the organization. Taken together, it means that Comtech is in a strong competitive position as we look ahead to fiscal 2024, and beyond.
We’re working hard to win new business and improve our operational machinery as we continue to work diligently to manage our balance sheet.
About Comtech
Comtech Telecommunications Corp. is a leading global technology company providing terrestrial and wireless network solutions, next-generation 9-1-1 emergency services, satellite and space communications technologies, and cloud native capabilities to commercial and government customers around the world. Our unique culture of innovation and employee empowerment unleashes a relentless passion for customer success. With multiple facilities located in technology corridors throughout the United States and around the world, Comtech leverages our global presence, technology leadership, and decades of experience to create the world’s most innovative communications solutions. For more information, please visit www.comtech.com.
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