Comtech Telecommunications Corp 10-Q for FY2021 Q1

Comtech Telecommunications Corp (CMTL)

10-Q 2020-12-09 For: 2020-10-31

Added on April 06, 2026

About this 10-Q

Comtech Telecommunications Corp filed this 10-Q on December 9, 2020, covering the quarter ended October 31, 2020 (FY2021 Q1).

Headline figures

Quarter ended October 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $135.22M; down 20.6% from $170.27M a year earlier
Net loss: $85.84M; compared with net income of $6.39M a year earlier
Diluted EPS: -$3.39; compared with $0.26 a year earlier

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Delaware						11-2139466
(State or other jurisdiction of incorporation /organization)						(I.R.S. Employer Identification Number)
68 South Service Road, Suite 230, Melville, NY						11747
(Address of principal executive offices)						(Zip Code)


COMTECH TELECOMMUNICATIONS CORP. INDEX
			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets - October 31, 2020 and July 31, 2020 (Unaudited)	2

		Condensed Consolidated Statements of Operations - Three Months Ended October 31, 2020 and 2019 (Unaudited)	3

		Condensed Consolidated Statements of Stockholders' Equity - Three Months Ended October 31, 2020 and 2019 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Three Months Ended October 31, 2020 and 2019 (Unaudited)	5

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

	Item 4.	Controls and Procedures	51

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	51

	Item 1A.	Risk Factors	51

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

	Item 4.	Mine Safety Disclosures	51

	Item 6.	Exhibits	52

		Signature Page	53


Assets	October 31, 2020		July 31, 2020
Current assets:
Cash and cash equivalents	$	32,468,000	47,878,000
Accounts receivable, net	132,070,000		126,816,000
Inventories, net	81,400,000		82,302,000
Prepaid expenses and other current assets	28,609,000		20,101,000

Total current assets	274,547,000		277,097,000

Property, plant and equipment, net	26,043,000		27,037,000
Operating lease right-of-use assets, net	28,340,000		30,033,000

Goodwill	331,487,000		330,519,000
Intangibles with finite lives, net	252,453,000		258,019,000

Deferred financing costs, net	2,207,000		2,391,000
Other assets, net	3,434,000		4,551,000
Total assets	$	918,511,000	929,647,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	25,887,000	23,423,000
Accrued expenses and other current liabilities	89,911,000		85,161,000
Operating lease liabilities, current	8,055,000		8,247,000

Dividends payable	—		2,468,000
Contract liabilities	44,229,000		40,250,000

Interest payable	1,470,000		163,000

Total current liabilities	169,552,000		159,712,000

Non-current portion of long-term debt, net	217,000,000		149,500,000
Operating lease liabilities, non-current	22,561,000		24,109,000


Income taxes payable	2,147,000		1,963,000
Deferred tax liability, net	18,143,000		17,637,000
Long-term contract liabilities	9,891,000		9,596,000
Other liabilities	19,065,000		17,831,000
Total liabilities	458,359,000		380,348,000
Commitments and contingencies (See Note 18)
Stockholders’ equity:
Preferred stock, par value $0.10 per share; shares authorized and unissued 2,000,000	—		—
Common stock, par value $0.10 per share; authorized 100,000,000 shares; issued 40,043,753 shares and 39,924,439 shares at October 31, 2020 and July 31, 2020, respectively	4,004,000		3,992,000
Additional paid-in capital	569,422,000		569,891,000
Retained earnings	328,575,000		417,265,000
	902,001,000		991,148,000
Less:
Treasury stock, at cost (15,033,317 shares at October 31, 2020 and July 31, 2020)	(441,849,000)		(441,849,000)
Total stockholders’ equity	460,152,000		549,299,000
Total liabilities and stockholders’ equity	$	918,511,000	929,647,000


	Three months ended October 31,

	2020		2019
Net sales	$	135,218,000	170,267,000
Cost of sales	85,010,000		106,700,000
Gross profit	50,208,000		63,567,000

Expenses:
Selling, general and administrative	27,540,000		31,851,000
Research and development	11,635,000		14,861,000
Amortization of intangibles	5,566,000		5,206,000

Acquisition plan expenses	91,183,000		2,389,000
	135,924,000		54,307,000

Operating (loss) income	(85,716,000)		9,260,000

Other expenses (income):
Interest expense	2,297,000		1,804,000
Interest (income) and other	66,000		(77,000)

(Loss) income before (benefit from) provision for income taxes	(88,079,000)		7,533,000
(Benefit from) provision for income taxes	(2,239,000)		1,145,000

Net (loss) income	$	(85,840,000)	6,388,000

Net (loss) income per share:
Basic	$	(3.39)	0.26
Diluted	$	(3.39)	0.26

Weighted average number of common shares outstanding – basic	25,305,000		24,555,000

Weighted average number of common and common equivalent shares outstanding – diluted	25,305,000		24,737,000


	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock			Stockholders' Equity
	Shares	Amount						Shares	Amount
Balance as of July 31, 2019	39,276,161	$	3,928,000	$	552,670,000	$	420,333,000	15,033,317	$	(441,849,000)	$	535,082,000
Equity-classified stock award compensation	—	—		879,000		—		—	—		879,000
Proceeds from exercises of stock options	10,600	1,000		305,000		—		—	—		306,000
Proceeds from issuance of employee stock purchase plan shares	10,135	1,000		245,000		—		—	—		246,000
Issuance of restricted stock	21,510	2,000		(2,000)		—		—	—		—
Net settlement of stock-based awards	83,820	8,000		(2,781,000)		—		—	—		(2,773,000)

Cash dividends declared, net ($0.10 per share)	—	—		—		(2,428,000)		—	—		(2,428,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—		(56,000)		—	—		(56,000)
Net income	—	—		—		6,388,000		—	—		6,388,000
Balance as of October 31, 2019	39,402,226	$	3,940,000	$	551,316,000	$	424,237,000	15,033,317	$	(441,849,000)	$	537,644,000

Balance as of July 31, 2020	39,924,439	3,992,000		569,891,000		417,265,000		15,033,317	(441,849,000)		549,299,000
Equity-classified stock award compensation	—	—		699,000		—		—	—		699,000

Proceeds from issuance of employee stock purchase plan shares	15,265	1,000		181,000		—		—	—		182,000
Issuance of restricted stock	35,975	4,000		(4,000)		—		—	—		—
Net settlement of stock-based awards	68,074	7,000		(1,345,000)		—		—	—		(1,338,000)
Cash dividends declared, net ($0.10 per share)	—	—		—		(2,493,000)		—	—		(2,493,000)
Accrual of dividend equivalents, net of reversal ($0.10 per share)	—	—		—		(142,000)		—	—		(142,000)
Adoption of current expected credit loss standard (see Note (3))	—	—		—		(215,000)		—	—		(215,000)
Net loss	—	—		—		(85,840,000)		—	—		(85,840,000)
Balance as of October 31, 2020	40,043,753	$	4,004,000	$	569,422,000	$	328,575,000	15,033,317	$	(441,849,000)	$	460,152,000


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


(631)			962-7000
(Registrant's telephone number, including area code)


	Purchase Price Allocation (1)		Measurement Period Adjustments	Purchase Price Allocation (as adjusted)
Payable in cash	$	12,075,000	—	$	12,075,000
Payable in common stock	11,575,000		—	11,575,000
Preliminary purchase price at fair value	$	23,650,000	—	$	23,650,000
Preliminary allocation of aggregate purchase price:
Cash and cash equivalents	$	160,000	—	$	160,000
Current assets	4,904,000		101,000	5,005,000
Property, plant and equipment	697,000		—	697,000
Operating lease assets	924,000		—	924,000
Deferred tax assets, non-current	470,000		—	470,000
Non-current assets	89,000		—	89,000
Contract liabilities	(6,890,000)		—	(6,890,000)
Accrued warranty obligations	(1,000,000)		—	(1,000,000)
Other current liabilities	(3,104,000)		—	(3,104,000)
Non-current liabilities	(1,327,000)		—	(1,327,000)
Net tangible liabilities at preliminary fair value	$	(5,077,000)	101,000	$	(4,976,000)
Identifiable intangibles, deferred taxes and goodwill:						Estimated Useful Lives
Technology	$	6,700,000	—	$	6,700,000	20 years
Customer relationships	8,100,000		—	8,100,000		17 years
Trade name	1,000,000		—	1,000,000		5 years
Deferred tax liabilities	(2,967,000)		(17,000)	(2,984,000)
Goodwill	15,894,000		(84,000)	15,810,000		Indefinite
Preliminary allocation of aggregate purchase price	$	23,650,000	—	$	23,650,000


	Three months ended October 31, 2020
	Commercial Solutions		Government Solutions	Total
Geographical region and customer type
U.S. government	$	9,458,000	34,432,000	$	43,890,000
Domestic	49,300,000		7,414,000	56,714,000
Total United States	58,758,000		41,846,000	100,604,000

International	23,044,000		11,570,000	34,614,000
Total	$	81,802,000	53,416,000	$	135,218,000
Contract type
Firm fixed-price	$	80,988,000	32,656,000	$	113,644,000
Cost reimbursable	814,000		20,760,000	21,574,000
Total	$	81,802,000	53,416,000	$	135,218,000
Transfer of control
Point in time	$	29,671,000	23,031,000	$	52,702,000
Over time	52,131,000		30,385,000	82,516,000
Total	$	81,802,000	53,416,000	$	135,218,000


	Three months ended October 31, 2019
	Commercial Solutions		Government Solutions	Total
Geographical region and customer type
U.S. government	$	16,748,000	52,773,000	$	69,521,000
Domestic	53,354,000		8,041,000	61,395,000
Total United States	70,102,000		60,814,000	130,916,000

International	24,212,000		15,139,000	39,351,000
Total	$	94,314,000	75,953,000	$	170,267,000
Contract type
Firm fixed-price	$	92,548,000	50,724,000	$	143,272,000
Cost reimbursable	1,766,000		25,229,000	26,995,000
Total	$	94,314,000	75,953,000	$	170,267,000
Transfer of control
Point in time	$	37,723,000	37,786,000	$	75,509,000
Over time	56,591,000		38,167,000	94,758,000
Total	$	94,314,000	75,953,000	$	170,267,000


	October 31, 2020		July 31, 2020
Receivables from commercial and international customers	$	64,461,000	67,109,000
Unbilled receivables from commercial and international customers	28,806,000		21,588,000
Receivables from the U.S. government and its agencies	37,345,000		32,870,000
Unbilled receivables from the U.S. government and its agencies	3,446,000		7,018,000
Total accounts receivable	134,058,000		128,585,000
Less allowance for doubtful accounts	1,988,000		1,769,000
Accounts receivable, net	$	132,070,000	126,816,000


	October 31, 2020		July 31, 2020
Raw materials and components	$	60,718,000	59,175,000
Work-in-process and finished goods	39,851,000		42,203,000
Total inventories	100,569,000		101,378,000
Less reserve for excess and obsolete inventories	19,169,000		19,076,000
Inventories, net	$	81,400,000	82,302,000


	October 31, 2020		July 31, 2020
Accrued wages and benefits	$	19,613,000	20,857,000
Accrued contract costs	12,707,000		15,306,000
Accrued warranty obligations	16,196,000		15,200,000
Accrued legal costs	2,593,000		2,539,000
Accrued commissions and royalties	4,576,000		4,621,000
Accrued acquisition plan expenses	22,794,000		7,014,000
Other	11,432,000		19,624,000
Accrued expenses and other current liabilities	$	89,911,000	85,161,000


	Operating		Finance	Total
Remainder of fiscal 2021	$	6,915,000	23,000	$	6,938,000
Fiscal 2022	8,056,000		16,000	8,072,000
Fiscal 2023	6,327,000		5,000	6,332,000
Fiscal 2024	4,982,000		—	4,982,000
Fiscal 2025	4,319,000		—	4,319,000
Thereafter	2,807,000		—	2,807,000
Total future undiscounted cash flows	33,406,000		44,000	33,450,000
Less: Present value discount	2,790,000		2,000	2,792,000
Lease liabilities	$	30,616,000	42,000	$	30,658,000

Weighted-average remaining lease terms (in years)	4.39		2.00
Weighted-average discount rate	4.04%		6.34%


FORM			10-Q


	Three months ended October 31,

	2020		2019
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest	$	786,000	1,701,000
Income taxes, net	$	22,000	79,000

Non-cash investing and financing activities:
Reclass of finance lease right-of-use assets to property, plant and equipment	$	—	295,000

Cash dividends declared but unpaid (including accrual of dividend equivalents)	$	142,000	2,484,000



Accrued additions to property, plant and equipment	$	1,489,000	692,000


	Awards (in Shares)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2020	1,422,025	$	26.17

Expired/canceled	(77,390)	29.90








Outstanding at October 31, 2020	1,344,635	$	25.95	4.44	$	—

Exercisable at October 31, 2020	1,011,335	$	28.59	2.77	$	—

Vested and expected to vest at October 31, 2020	1,330,173	$	26.04	4.39	$	—


	Awards (in Shares)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at July 31, 2020	999,574	$	21.15
Granted	383,337	16.67
Settled	(176,051)	20.47
Canceled/Forfeited	(65,215)	16.16








Outstanding at October 31, 2020	1,141,645	$	20.03	$	16,439,684

Vested at October 31, 2020	396,254	$	16.61	$	5,706,054

Vested and expected to vest at October 31, 2020	1,098,098	$	20.00	$	15,812,607


			October 31, 2020
Stock options			1,344,635
Performance shares			254,148
RSUs and restricted stock			599,975
Share units			287,522

Total			2,486,280


	October 31, 2020
	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization	Net Carrying Amount
Customer relationships	20.4	$	286,058,000	82,845,000	$	203,213,000
Technologies	14.0	99,349,000		66,908,000	32,441,000
Trademarks and other	16.6	32,826,000		16,027,000	16,799,000
Total		$	418,233,000	165,780,000	$	252,453,000


2021	$	21,116,000
2022	19,648,000
2023	19,648,000
2024	19,021,000
2025	18,918,000


($ in millions)	Fiscal Year 2020
Reconciliation of GAAP Net Income to Adjusted EBITDA:
Net income	$	7.0
Provision for income taxes	2.3
Interest (income) and other	(0.2)
Interest expense	6.1
Amortization of stock-based compensation	9.3
Amortization of intangibles	21.6
Depreciation	10.6
Estimated contract settlement costs	0.4
Acquisition plan expenses	20.8
Adjusted EBITDA	$	77.8


	Three months ended October 31, 2020
($ in millions, except for per share amount)	Operating (Loss) Income		Net (Loss) Income		Net (Loss) Income per Diluted Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	(85.7)	$	(85.8)	$	(3.39)

Acquisition plan expenses		91.2		88.3		3.49
Interest expense		—		1.0		0.04
Net discrete tax expense		—		0.2		0.01
Non-GAAP measures	$	5.5	$	3.7	$	0.15

	Three months ended October 31, 2019
($ in millions, except for per share amount)	Operating Income		Net Income		Net Income per Diluted Share
Reconciliation of GAAP to Non-GAAP Earnings:
GAAP measures, as reported	$	9.3	$	6.4	$	0.26
Acquisition plan expenses		2.4		1.8		0.07
Estimated contract settlement costs		0.2		0.2		0.01
Net discrete tax benefit		—		(0.6)		(0.02)
Non-GAAP measures	$	11.9	$	7.8	$	0.32


	Obligations Due by Fiscal Years or Maturity Date (in thousands)
	Total		Remainder of 2021	2022 and 2023	2024 and 2025	After 2025
Credit Facility - principal payments	$	217,000	—	—	217,000	—
Credit Facility - interest payments	14,154		3,551	9,436	1,167	—
Operating and finance lease obligations	33,450		6,938	14,404	9,301	2,807
Contractual cash obligations	$	264,604	10,489	23,840	227,468	2,807



Date:	December 9, 2020	By: /s/ Fred Kornberg
	(Date)	Fred Kornberg
		Chairman of the Board
		Chief Executive Officer
		(Principal Executive Officer)

Date:	December 9, 2020	By: /s/ Michael A. Bondi
	(Date)	Michael A. Bondi
		Chief Financial Officer
		(Principal Financial and Accounting Officer)


			/s/ Fred Kornberg
			Fred Kornberg Chairman of the Board and Chief Executive Officer


			/s/ Michael A. Bondi
			Michael A. Bondi Chief Financial Officer