Comtech Q1 Results Anticipate Higher Government Sales for 2014

Comtech Troposcatter 2014 Sequestration

Comtech Offices in Maryland, Arizona, California and China. Photo: Comtech

[Via Satellite 12-16-13] Comtech Telecommunications managed to maintain investor confidence with the release of its first quarter fiscal year 2014 results. The company reported a decrease in revenues but an increase in fiscal 2014 guidance. Revenues for the first quarter were $83.4 million, down from $91 million at the same time last year. However, thanks to encouraging market prospects, overall revenues for fiscal 2014 are predicted to land within the range of $325 to $345 million, an increase of $5 million from previous predictions.

Much of the decrease in sales was attributed to limited government spending, which affected all three of Comtech’s major market segments. Sustained contracts, along with deals both currently active and described as “in the pipeline” from domestic and international customers, buoyed the company through this difficult time.

Anticipating an increase in spending from the U.S. government, the company is confident that fiscal year 2014 will not carry with it all the difficulties of sequestration.

“The signs of stabilization that we observed in certain of our end markets during the last quarter of fiscal 2013 continue throughout the first quarter of 2014,” said Fred Kornberg, president and CEO, Comtech. “We believe that certain of our end markets may be actually improving.”

Comtech’s telecom segment remains the largest overall and showed some improvement in growth; net sales for Q1 totaled $54.4 million, up 2.1 percent from last year’s $53.3 million. “This increase reflects higher sales in our over the horizon microwave system product line, which were partially offset by slightly lower sales in our satellite Earth station products,” said Michael Porcelain, senior VP and CFO, Comtech. Sales for satellite Earth station products decreased slightly due to lower U.S. government sales, which were attributed to the partial shutdown that occurred during the first quarter.

Sales from over-the-horizon microwave systems are expected to boost Comtech’s telecom sales over last year’s results. The company has a three year $58.6 million contract and a four year $54.4 million contract to design and supply over-the-horizon microwave systems and equipment for use in a North African government communications network. Comtech was also recently awarded a $6.3 million add-on contract for this same customer.

“Based on our expected performance on both of these contracts, and other contracts currently in our backlog, as well as all the contracts we anticipate receiving, we expect net sales for this product line to be significantly higher than the level we achieved in fiscal 2013, with higher sales in the second half of fiscal 2014, as compared to the first half of fiscal 2014,” said Porcelain. “There are also additional large opportunities with this end customer that we believe will materialize in the years ahead, and more importantly we hope to duplicate this type of relationship with other countries in the next few years.”

Net sales for Comtech’s RF microwave amplifier segment were $20.2 million in Q1 2014, as compared to $25.3 million in Q1 of fiscal 2013, representing a decrease of 20.2 percent. Porcelain cited challenging market conditions as the cause, but rebounded stating that despite this and the timing of orders, the company segment had a good quarter of bookings.

“Our book-to-bill ratio for the first quarter of fiscal 2014 was approximately 1.0,” he said. “Based on discussions with our customers, we believe that end markets for our RF microwave amplifier products have stabilized, and may also be improving. Although overall market conditions remain difficult, based on the level of our current backlog and the anticipated timing of orders we expect to receive, we expect sales in the segment for fiscal 2014 to be slightly higher than the level we achieved in fiscal 2013.”

Mobile data communications sales still reflected the loss of key army contracts. Reported revenues for Q1 of fiscal 2014 were $8.8 million as compared to $12.3 million in Q1 of fiscal 2013, a decrease of 28.5 percent from Q1 of last year. “This anticipated decrease is primarily attributable to a decline in BFT-1 hardware sales to the U.S. army that occurred in last year,” said Porcelain. “Sales for both periods include $2.5 million in revenue related to our annual 10-million dollar BFT-1 intellectual property licensing. Based on the current level of our backlog, and the anticipated receipt of new a new contract and related funding for BFT-1 sustainment services, including our annual intellectual property licensing, we expect net sales in our mobile data communications segment to be significantly lower in 2014 as compared to fiscal 2013.”

As of Oct. 31, 2013, Comtech had a backlog of $182.8 million, down from $189.7 million as of July 31, 2013. Generated revenues of $83.4 million were made up of 25.6 percent U.S. government end users and 57 percent for international end users, with 17.4 percent comprising for domestic commercial end customers.

Comtech is looking forward to increased revenue from government customers, while at the same time limiting focus on extrinsic projects and giving greater emphasis to expanding internationally in Middle Eastern, Asian South American and African markets. “At this point, although we’re still navigating through a challenging global economy, with strong headwinds from the U.S. government funding pressures, the signs of stabilization and improvement are encouraging,” said Kornberg.

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