Comtech Telecommunications Corp. (NASDAQ:CMTL) Q1 2023 Earnings Call Transcript

Comtech Telecommunications Corp. (NASDAQ:CMTL) Q1 2023 Earnings Call Transcript December 8, 2022

Comtech Telecommunications Corp. misses on earnings expectations. Reported EPS is $-0.46 EPS, expectations were $-0.1.

Operator: Welcome to Comtech’s Fiscal Q1 2023 Earnings Conference Call. As a reminder, this conference is being recorded, Thursday, December 8th, 2022. I would now like to turn the conference over to Mr. Robert Samuels of Comtech. Please go ahead, sir.

Robert Samuels: Good afternoon, everyone, and thanks for taking the time to dial in today. I’m Rob Samuels, Comtech’s Head of Investor Relations. Welcome to Comtech Telecommunications Corp.’s conference call for the first quarter of fiscal year 2023. Today, I’m here with Comtech Chairman, President and CEO, Ken Peterman. We’re also joined by Mike Bondi, our CFO and we’ll also be hearing from Maria Hedden, our Chief Operating Office. Before we get started today, I’ll also say that both myself and Ken and always available to answer questions our investors may have, so please get in touch if you want to organize a meeting to talk about the company, our results, or our strategy. We also have a detailed discussion of the quarter in our shareholder letter available on our website and we have also been working to communicate directly about our business and our market between quarters in our blog, Comtech Signals.

Finally, let me remind you of the company’s Safe Harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company, the company’s plans, objectives, and business outlook, and the plans, objectives and business outlook of the company’s management. The company’s assumptions regarding such performance, business outlook, and plans are forward-looking in nature and involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company’s Securities and Exchange Commission filings.

Now, I am pleased to introduce the President and Chief Executive Officer of Comtech, Ken Peterman. Ken?

See also 10 Best Cannabis Stocks To Buy and 15 Most Trusted Companies in the World

Ken Peterman: Hello everyone and thanks again for taking the time to dial in today. As you all know, this is still early days in my tenure as CEO and early in the journey for everyone at Comtech as we move to fundamentally transform our business. That said, as we head into a new calendar year and close the books on our first quarter of fiscal 2023, I could not be more pleased with the progress we’re making and the opportunities ahead. One thing that I was consistent and clear about from day one in my conversations with everyone from my leadership team, our employees and our investors, was that Comtech needed to move faster than ever before. Our end markets are changing in real-time, our customers’ needs are constantly evolving, and new technologies mean that we can offer creative solutions to solve their problems if we as an organization, commit to working together as one contact.

This means sharing our collective expertise, our insights, and abilities to improve everything from our operations, to our products, and our culture. It’s early in the process, but the One Comtech journey is underway and working. I see it every day in our people and it’s also being reflected in our financial performance. In addition to a quarter-over-quarter increase in consolidated net sales, representing the fourth straight quarter of topline sequential growth for Comtech, our bookings of $181 million foreshadows the increasing customer value we are creating as One Comtech. I should also point out that this performance was delivered even as we reorganized our business, continued to restructure our senior leadership team across multiple functions with key appointments, and continued to make changes to improve the functional machinery of our organization.

I want to talk a little more about what we’ve accomplished and what you can expect from us going forward. And I want you to hear directly from our COO, Maria Hedden, as she’s in the trenches, streamlining and improving our processes so that everything we do at Comtech we do better, faster, and more efficiently. Before that, I do want to turn the call over to Mike Bondi, our CFO, so he can walk you through our financial performance for the quarter. Mike?

Michael Bondi: Thanks Ken. For Q1 fiscal 2023, we recorded $131.1 million of consolidated net sales, of which $80.9 million were recorded in our Satellite and Space Communication segment, and $50.3 million were recorded in our Terrestrial and Wireless Network segment. Our consolidated first quarter net sales represented a 3.3% increase over last quarter and, as Ken mentioned, our fourth consecutive quarterly increase. Compared to the year-ago quarter, our consolidated Q1 fiscal 2023 net sales increased $14.3 million or 12.2%, driven by higher revenue in our Satellite and Space Communication segment. Consolidated gross margins were 35.7%, in line with our gross margins achieved in Q1 and Q4 fiscal 2022. Our gross profit percentage in Q1 fiscal 2023 reflects an increase in net sales and overall product mix changes.

It also reflects startup costs associated with the opening of our new high volume technology manufacturing centers, as well as increased costs resulting from the ongoing impacts of COVID-19 and inflationary pressures. As explained in more detail and reconciled in our Form 10-Q filed earlier today, we utilize a non-GAAP measure that we referred to as adjusted EBITDA. Q1 fiscal 2023 adjusted EBITDA was $10.7 million or 8.2% of consolidated net sales as compared to $5.5 million or 4.7% in Q1 fiscal 2022. The increase both in dollars and as a percentage of sales is primarily attributable to the increase in Q1 fiscal 2023 net sales. Sequentially, in line with our prior guidance, adjusted EBITDA in Q1 fiscal 2023 was lower, both in dollars and as a percentage of sales, reflecting overall changes in mix, the general rise in costs due to an inefficient supply chain and inflation, and the settlement last quarter of fiscal 2022 annual incentive compensation with fiscal — fully vested share units in lieu of cash.

As Ken previously mentioned, bookings during the quarter totaled $181.2 million, representing a 26.9% sequential quarterly increase, and a quarterly book-to-bill ratio of 1.38 times. Our current revenue visibility is approximately $1.1 billion and is equal to the sum of our $668.2 million of funded backlog plus the total unfunded value of certain multi-year contracts that we have received and from which we expect future orders. Overall, our consolidated Q1 net sales and adjusted EBITDA were ahead of our guidance provided last quarter and we’re pleased to have exceeded our targets, and to have increased our funded backlog from July, particularly in light of an economic environment that continues to be challenging. Now, let me return the call back over to Ken.

Ken Peterman: Thanks Mike. As I said, at the top of the call, a big part of our financial performance reflects a lot of hard work that we’re doing to improve the core machinery of our business. In my opinion, we have the best people and the best solutions, and we serve the most demanding customers in the world and we’re growing. To support everything, we’re doing and everything we want to do, we have to make sure that Comtech’s organization, operations and systems can keep pace with where our business is going. A lot of that work is being spearheaded by Maria Hedden, our Chief Operating Officer. Maria joined us in March, bringing over 20 years of executive P&L management experience and a history of improving business performance.

At the core of Maria’s work is a commitment to a One Comtech strategy, ensuring that everyone at the company shares a common set of tools and processes to improve and optimize everything they do every day. I want you to be able to hear directly from Maria, that’s her workplace such an important role in accelerating the growth and profitability of our business. Maria?

Q&A Session

Maria Hedden: Thanks Ken and good to be able to have the opportunity to speak with all of you today. Today is actually the first time I’ve participated on earnings call, but I think it highlights two things that I expect are important for investors. The first is at Comtech, we are making serious strategic commitment to operational integration and excellence, what you’ve heard Ken call One Comtech. The second is that we are focused on translating that strategic commitment into tangible actions on the ground that improve the way we work, and the way we work with each other every day. Our belief is that cumulatively, those actions will make us a stronger company, will directly translate into growth and profitability, and in so doing deliver value to our shareholders.

All of this is to say our One Comtech strategy isn’t about ideas as much as it is about actions. Shortly after I arrived, it became clear to me that we already had the single most important resource a company can have in place, a talented passionate workforce. As I saw it, my job was to ensure that all these talented people had the right organizational machinery around them to support what they were already doing, and ways that were more effective, efficient, and scalable. We needed to collectively harmonize our business with best practices through each business unit. That meant everything from optimizing the company’s supply chain. Our engineering operations, our manufacturing to our sales processes, including pricing and contract reviews.

And also meant we had to make sure all our teams were appropriately staffed to not only meet today’s needs, but for the growth we anticipate. And a reorganization of our leadership structure to make sure we had the right executives in place, but also create structures to ensure all our leaders had a clear sense of the totality of our business and access to the insights and innovation from across the business. In a very short period of time, we have not only committed ourselves to the idea of One Comtech, but we are implementing it. We have made key appointments and strong hires into leadership positions. We are in the process of a firmware business and operations improvement, project to control costs, where we can to defend and grow margins, while at the same time make deliberate investments to promote our growth and ability to operate at scale.

And while this may sound straightforward, we make sure we are talking to each other all the time. I have instituted a monthly business review process which convenes the entire leadership team for a full day to make sure we celebrate our wins, learn from our losses, and make sure our plans and targets are on track and appropriately resource. Related, I also hosted a strategic goals deployment session so that I, as COO, can make sure that the organization has a clear understanding of how to properly support our growth initiatives. There’s a lot of change happening at Comtech right now. And in many organizations, change can bring uncertainties and down, but at Comtech, I see every day what our financial performance this quarter confirms that we’re making the right kinds of changes that are unleashing and empowering our people to do what they already were doing, innovating and delivering the best solutions to our customers around the world.

We all know that there is a lot of work to do ahead of us, but I have the confidence that the changes we are, and will be implementing at Comtech, will create permanent competitive advantages for our company and our customers as well as value for our shareholders. Thank you for your time and now let me turn to Ken for his closing remarks.